Harris to Divest Broadcast Unit

Zacks

Harris Corporation (HRS) has reached a deal to sell its Broadcast Communications business to an investment firm The Gores Group, LLC for $225 million. Offloading the broadcast arm is part of the company’s strategy to concentrate on its core business.

Sale proceeds include $160 million in cash, $15 million in subordinated promissory note and an earn-out of $50 million based on future performances. The transaction is expected to close in the early part of 2013 and is subject to customary regulatory approval.

Harris’ Broadcast Communications division manufactures and supplies infrastructure and networking equipments to the broadcasters, which include next generation routers, processors, multiviewers, video servers among others. It has manufacturing facility at Toronto, Quicny, Ohio, Denver and employs around 1700 people.

Earlier in May, Harris declared plans to divest Broadcast Communications following which it retrenched twelve employees in November due to the company’s poor quarterly performance. The divestiture is believed to be a positive move by Harris as the Los Angeles-based investment firm has lots of investment and technological expertise.

Harris is a leader in the public safety and professional communications market and its radio products are very popular among the defense sectors of different countries. The company has been receiving numerous orders for its Falcon III tactical radio from various military and Government organizations. During the first quarter of fiscal 2013, Harris’ Tactical Radio Communications segment received new orders worth $254 million and has an order backlog of nearly $612 million.

We believe divesting its broadcast arm will allow the company to focus more on its major revenue contributor RF Communication segment and compete more efficiently with companies like Boeing Co. (BA), General Dynamics Corp. (GD) and Raytheon Co. (RTN), which also provide high-end public safety communications system.

We are maintaining our long-term ‘Neutral’ recommendation on Harris Corporation. Currently, it holds a Zacks #3 Rank, implying a short-term Hold rating.

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