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Harris-L3 Merger Gets Regulatory Nod, L3Harris Set for Debut

Zacks Equity Research

Harris Corporation HRS recently secured the final regulatory approval from European Union (“EU”) for its long-pending merger with L3 Technologies, Inc. LLL. With this, the all-stock-merger deal is set to close on Jun 29, 2019, paving the way for the formation of one of the largest entities in the U.S. defense industry.

In October 2018, Harris had inked a deal to merge with L3 Technologies in a bid to increase the economies of scale, strengthen core businesses and fortify its position as a premier global defense technology company. Notably, L3 Technologies is a leading provider of global intelligence, surveillance and reconnaissance, communications and electronic systems for military, homeland security and commercial aviation customers. Per the agreement, L3 shareholders will receive a fixed exchange ratio of 1.30 shares of Harris for each share of L3.

Harris had earlier received mandatory approvals for the transaction from all concerned authorities except the anti-trust regulatory body of the EU. The EU Commission feared that the merger would lead to a monopolistic market for image intensification night vision devices and image intensification tubes, harming competitive and fair-trade practices. In order to clear the last stumbling block, Harris sold its Night Vision business to Elbit Systems of America, LLC for $350 million in cash. This cleared the path for the final regulatory approval for one of the largest mergers in the defense industry.

Post completion, Harris and L3 Technologies shareholders will own approximately 54% and 46%, respectively, of the combined company — L3 Harris Technologies, Inc. The combined entity will be the sixth largest defense company in the United States and a top 10 defense company globally, with approximately 48,000 employees and customers in more than 100 countries.

Both Harris and L3 Technologies will cease to trade upon market close on Jun 28 under their respective ticker symbols, with L3 Harris marking its trading debut under the ticker symbol “LHX”. L3Harris remains poised to benefit from improved market fundamentals and solid growth dynamics, driven by increased operational synergies.

Harris currently carries a Zacks Rank #3 (Hold). A couple of top-ranked stocks in the industry are Juniper Networks, Inc. JNPR and Motorola Solutions, Inc. MSI, both carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Juniper has a long-term earnings growth expectation of 6.2%. It beat earnings estimates in each of the trailing four quarters, the average positive surprise being 15.4%.  
       
Motorola has a long-term earnings growth expectation of 7.7%. It beat earnings estimates in each of the trailing four quarters, the average surprise being 9.1%.

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