{"id":17877,"date":"2018-10-15T16:51:10","date_gmt":"2018-10-15T16:51:10","guid":{"rendered":"https:\/\/one.sightlinemg.com\/defensenews\/uncategorized\/2018\/10\/15\/harris-and-l3-ceos-talk-merger-divestitures-and-why-we-all-should-have-seen-this-coming\/"},"modified":"2026-08-07T21:42:31","modified_gmt":"2026-08-07T21:42:31","slug":"harris-and-l3-ceos-talk-merger-divestitures-and-why-we-all-should-have-seen-this-coming","status":"publish","type":"post","link":"https:\/\/one.sightlinemg.com\/defensenews\/interviews\/2018\/10\/15\/harris-and-l3-ceos-talk-merger-divestitures-and-why-we-all-should-have-seen-this-coming\/","title":{"rendered":"Harris and L3 CEOs talk merger, divestitures and why we all should have seen this coming"},"content":{"rendered":"\n<p class=\"wp-block-paragraph\">If you ask Chris Kubasik, CEO of L3 Technologies, the company\u2019s pending merger with Harris Corp. should not come as a surprise to anyone. Such a move made sense on paper for years, even if the timing was never quite right.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Now it is: Both companies are on an upswing, and both companies are led by individuals with an inclination to get it done. The result will be a deal \u2014 the largest defense merger in history, if you look at market capitalization \u2014 to create the seventh largest defense prime in the world.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Defense News spoke to Kubasik and Bill Brown, the CEO of Harris, to find out more about the newly rechristened L3 Harris Technologies.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><b>Chris, you called this an acquisition that many felt made sense. So what were the challenges to making it happen, and why is now the perfect time? <\/b><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><u>Chris Kubasik<\/u>: I think in reality, people thought for years that this combination made sense. It was due to Bill and I working hard that we actually got it done.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">I think that now is the perfect time because of the customer\u2019s needs and demands for innovation and solution. Like I said, with the upswing in both companies, and both companies being strong, I think that gives us the opportunity to put this together, generate the cash and the synergies and position us for long-term value creation for our shareholders.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">The challenges of all these acquisitions [are so often] culture and leadership. Here, the cultures are aligned. Bill and I are completely aligned. We\u2019ve known each other for years. We have a clear understanding of roles and responsibilities.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">We\u2019re going to jointly chair the integration committee to make sure we get the best of the best \u2014 best people, best processes, best system. I\u2019m sure I\u2019ve never been more excited in my career than I am today, so it\u2019s going to be a lot of fun. The stakeholders are all going to benefit.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><b>Bill, how much was the 2015 acquisition of Exelis a building block toward this deal? Not necessarily a merger with L3 specifically, but really big merger that would really transform the company? Did you see this coming? <\/b><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><u>Bill Brown<\/u>: I\u2019ve been here for seven years, so we really started early on in developing a culture of operational excellence. I think that has been pretty well embedded within the company. We\u2019ve made some good progress here. We\u2019ve leveraged a lot of those tools, effectively integrating Exelis. We reached the cost savings targets we thought we would deliver and we delivered it a year early.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">So I think we built a little bit of a muscle on how to do an integration. I think this is a great potential combination for us. It does position us well within the defense industrial based hierarchy. We\u2019ll generate a lot of savings. But more importantly, the portfolio capabilities is going to allow us to do different things, to provide different capabilities to the war fighter and different things that are clearly laid out in the National Defense Strategy.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">So as I look at this, it\u2019s the right transaction. It\u2019s the right time. It\u2019s the right environment to do this. A lot of this comes down to the leaders of the organization, and Chris and I [are] completely aligned in what to do and how to create value.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><b>So much of this also involves combining and integrating in a smart and efficient way, so should we expect any more divestitures? I know L3 just did a couple recently. Any more to come? <\/b><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><u>Brown<\/u>: I think if you look at what L3 has done recently, and what we\u2019ve done over the last five or six years, we both have taken a critical eye to the business portfolio we had. If there\u2019s assets we think that are better owned by somebody other than [ourselves], we take a dispassionate view of that. And we transition those assets to a different owner.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">I think Chris and I will take a look at that going forward. I think there will be [divestitures], given the diversity of the business mix we\u2019ll have together. It does create the optionality for additional portfolio shaping. Nothing to mention today, but something we\u2019ll be taking a close look at over the coming months and years.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><b>Okay, so the couple of years before the transition, in terms of leadership \u2014 should I figure that those two years are going to be spent really establishing the integrated company?<\/b><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><u>Kubasik<\/u>: Absolutely. The top two focuses of Bill and I and the team will be the integration, and continuing to execute on our existing programs and commitments. That is first and foremost. We\u2019re going to generate a lot of cash. It\u2019s going to take several hundred million dollars of investments to integrate these companies. Then the rest of the cash we\u2019re going to maintain a competitive dividend, consistent with what we\u2019ve done. We\u2019re very similar in that regard. In the first year, we\u2019re going to use the excess cash to repurchase shares. So the likelihood of acquisition from those first two years are very low.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">As Bill said, we\u2019ll look at the portfolio. We\u2019ve clearly spent a lot of time together, but the next few months we\u2019ll get into it more and more and see what makes sense. The way I sum it up is, the merger creates better benefits and growth opportunities than either company could have achieved alone.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><b>I know both companies are incredibly strong in terms of C4ISR and a lot of what you might call the future warfare capabilities. What kind of growth do you anticipate in that area? <\/b><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><u>Brown<\/u>: When I look at the next several years, you\u2019re hitting on the right spot. When you look at <a href=\"https:\/\/www.c4isrnet.com\/\" target=_blank>C4ISR<\/a>, it\u2019s a broad category. When you look at the pieces underneath that, I think Chris and I, our companies, bring great capabilities [that are] complementary.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">When you think about what we do at Harris, we\u2019ve got a very strong position in tactical radios \u2014 global leadership, U.S. leadership. A lot of it\u2019s ground, starting the movements to airborne tier, starting to provide systems. Chris\u2019s business is very strong in avionics. It\u2019s very strong in data links, very strong in satcom, very strong between the two of us in optical capability. When you look at all of that broad way of getting better ISR information, I think we bring the right capabilities to the fight.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><u>Kubasik<\/u>: We\u2019ll be spending about 4% of our revenues on R&amp;D, which I think is aggressive. And we talk about the customers, just to clarify \u2014 we have two sets. We have the usual industry partners, who I think will benefit from this combination, the same way that our end-user DoD customer will as well.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><b>Are there any programs that you both were competing on, where there\u2019s going to need to be some sort management to eliminate conflicts of interest? <\/b><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><u>Brown<\/u>: Very, very small. It\u2019s almost negligible in terms of where we compete head to head. Again, it\u2019s a very complimentary set of businesses, so we don\u2019t see that as being a big concern.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><b>What kind of layoffs are you all anticipating? <\/b><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><u>Brown<\/u>: We expect half a billion dollars of cost savings, and half of it is going to come from supply chain and facility rationalization \u2014 consolidating our mutual footprint. About half of that other half, so 25 percent, is split from corporate and segment overhead reduction in functional efficiencies, shared services \u2014 things that we\u2019ve done and Chris is now driving at all three.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">But we&#8217;re in a market today where the unemployment rate&#8217;s very low. We both were out there hiring people, trying to hire talented engineers and scientists, get people through clearances. So fortunately, we&#8217;re in an environment where we need more people, not fewer people.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><b>Okay, so you think it\u2019ll be relatively modest, getting rid of where there might be overlap? <\/b><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><u>Brown<\/u>: There\u2019s going to be some overlap. There\u2019ll be some movement of people, but we\u2019re not prepared to talk about any employment reduction today. But again, look, it\u2019s an environment today where we\u2019re looking for more people, especially in the STEM field.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><b>The decision to make Melbourne, Florida the headquarters \u2014 will that be permanent? <\/b><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><u>Brown<\/u>: Yeah, it\u2019ll be as soon as we close. It\u2019ll be the headquarters in Melbourne, and Chris is going to move to Melbourne. We have about 7,000 people in Brevard County. We\u2019ve been there for 40 years, very deep, entrenched infrastructure.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">If you know the area, a lot of the defense players, aerospace defense players, are moving now to the Space Coast. It\u2019s a very vibrant community. Again, we\u2019ve been there for a while. We\u2019re deeply embedded into the community with a lot of infrastructure at Harris, so that\u2019s what we decided to do.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><b>Bill, I was convinced Harris was going to move to Washington for a while, but you proved me wrong. <\/b><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><u>Brown<\/u>: You know, it\u2019s interesting. Look, that came up for us, when we did Exelis, but Chris and I\u2019ve talked about this. It just doesn\u2019t make sense for both companies to move headquarters at the same time. That provides an additional risk in a deal. We thought we need to move to one place or the other. We both thought that Melbourne was a better place for the headquarters of the company.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><b>Chris, you get to move again.<\/b><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><u>Kubasik<\/u>: You know, it\u2019s been a couple of years, time to move. I\u2019m getting used to it, so if things slow down this week, maybe one night at 10:00 I\u2019ll log onto a real estate website and try to be a first mover before the prices increase down there. [laughter]<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><b>I know you said in the next couple years no acquisitions would be on the horizon, but do you anticipate even more areas of business that would meld with those that you already play well in? <\/b><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><u>Brown<\/u>: Look, I would say you started out the question the way I\u2019d answer it, which is: it\u2019s too soon to determine that. I think the next couple of years will be about integrating the companies. It\u2019ll be about divesting. If we see opportunities for portfolio shaping, making sure that happens, so we stay focused on the business where strategically it makes sense for us to be in longer term. But I think Chris and I both have talked very publicly, individually as companies, about M&amp;A is a part of our long-term growth strategy.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">So over time, we do anticipate, under Chris&#8217;s leadership, that there&#8217;ll be other M&amp;As that will happen over time. But I think in the next couple of years, unless it&#8217;s something exceptional, must have, we&#8217;re going to stand down on M&amp;A and really focus on integrating the portfolios that we have.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><u>Kubasik<\/u>: Now the organic growth opportunities, and the beauty of having two leaders at the top, will allow us to focus on our customers, not only in D.C., but globally. And you know how much I love to travel internationally \u2014 we\u2019re going to have customers in over 100 countries. I still look at that in amazement. We\u2019ll be able to deepen those relationships. We both work in a lot of the same countries, but when you have a larger combined content, I think we\u2019ll be able to advance internationally maybe further, quicker than we would have individually. So I think one of my focus areas is going to be to help grow the business and meet with those customers around the globe.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><b>Chris I\u2019ve spoken to you a couple of times on the big plans and aspirations to be a non-traditional six prime. You got there way faster than I thought you would. <\/b><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><u>Kubasik:<\/u> Oh, thank you, I\u2019m an impatient person.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><b>I know you also said to me that you didn\u2019t envision, and I quote, \u201cbuilding multi-billion-dollar satellites, airplanes and ships.\u201d Does that vision of what the company is, and will be, as a six prime remain intact with this merger? <\/b><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><u>Kubasik<\/u>: We don\u2019t really have any major platforms, [but] when I look at the different domains that we\u2019re going to be able to serve, whether it\u2019s air, space, land or sea or cyber, that\u2019s the exciting part. On the air side, as an example, on a combined basis we have some pretty exciting capabilities with avionics and electronic warfare, as an example. So we\u2019ll be able to be on the legacy programs, like the F-16 and F-18, which we already are, and we\u2019ll have more content on the next-gen platforms like an F-35.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">So if we go domain by domain, you see the ability to better connect the different platforms to focus on the secured communication. I think we&#8217;re well positioned for the multi-domain, command and control and communication systems.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">I\u2019m excited about the small satellite business that Harris has. I think that\u2019s great. You know about our UUVs, our UAVs. I think it\u2019s going to work well in conjunction with the industry prime. It\u2019ll be a collaborative, cooperative relationship.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><u>Brown<\/u>: I think we\u2019re not a company that does or will do a lot of these big, major platforms that the big primes are doing today. The way we look at it, 72 percent of the combined business will be prime, meaning sales to and customers. I think that\u2019s an important point to make.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><b>Bill you\u2019ve talked to me about space superiority. How key is space to the combined business? <\/b><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><u>Brown<\/u>: We have a pretty broad business in space in terms of space superiority. A lot of it, it\u2019s ground-based capabilities that provide offensive and defensive capabilities to that space architecture. We\u2019ve developed a lot of exquisite systems and components that have now moved into end-to-end mission solutions for small satellites. We\u2019ve got a lot of capabilities on our end, in optics. Chris\u2019s business, L3, is also strong in small optics, and they\u2019ve got really good signal intelligence capabilities that I think can augment the things that we do with some of the space architecture. So I see that as helping us continue to broaden that set of mission solutions in the space domain, that I think we spent the last several decades, actually, developing.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><b>What does this merger mean to the top primes? <\/b><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><u>Brown<\/u>: We have at Harris a great relationship with all of the primes. [We] do a lot of work particularly with Boeing and Lockheed. We do quite a bit now with Raytheon as well, so I think we have great partnerships, and I think if anything [this] is going to be additive to that partnership. I think it\u2019ll be favorably received by the primes.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><u>Kubasik<\/u>: I agree a 100 percent. I think they\u2019re going to be equally excited as the DoD customer for the same reasons. We\u2019ll have the money to innovate the R&amp;D, maybe bundle some solutions. They\u2019ll also share over time in the affordability of this synergy. I think it\u2019s a win-win for the industry and the DoD customers.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><b>Bill, in two years you hand the CEO spot to Chris. I\u2019m asking you to look at a couple years down the road, and I know you\u2019re remaining on the board, but any other big plans? <\/b><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><u>Brown<\/u>: Look, that\u2019s three and a half years down the road. If I look at six months between sign and close \u2013 that\u2019s a lifetime year, as you can imagine. I\u2019ve been CEO here for seven years. That puts me 10 years at the company. I think with Chris, we\u2019ll put the company together on the right track. Look, I\u2019ll find something productive to do with my life at that point.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Harris CEO Bill Brown and L3 CEO Chris Kubasik spoke with Defense News to discuss the future of their merged 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By:"},"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v26.0 (Yoast SEO v28.1) - https:\/\/yoast.com\/product\/yoast-seo-premium-wordpress\/ -->\n<title>Harris and L3 CEOs talk merger, divestitures and why we all should have seen this coming - Defense News<\/title>\n<meta name=\"description\" content=\"Harris CEO Bill Brown and L3 CEO Chris Kubasik spoke with Defense News to discuss the future of their merged company.\" \/>\n<meta name=\"robots\" content=\"noindex, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Harris and L3 CEOs talk merger, divestitures and why we all should have seen this coming\" \/>\n<meta property=\"og:description\" content=\"Harris CEO Bill Brown and L3 CEO Chris Kubasik spoke with Defense News to discuss the future of their merged company.\" \/>\n<meta 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