U.S. defense suppliers Harris and Exelis to combine

Fri Feb 6, 2015 3:04pm EST
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By Andrea Shalal and Subrat Patnaik

(Reuters) - Harris Corp HRS.N will buy Exelis Inc XLS.N in a deal valued at about $4.75 billion, combining two big suppliers to the U.S. military at a time when the government is squeezing spending on defense.

Shares of Exelis soared as much as 37.4 percent to a record $24.34 on Friday, topping the $23.75 per share cash-and-stock offer from Harris.

Harris shares jumped as much as 12.7 percent to a record $78.30.

U.S. defense contractors, including Lockheed Martin Corp (LMT.N: Quote) and General Dynamics Corp (GD.N: Quote), have cut costs and increased their international exposure as the Pentagon tries to reduce spending by $1 trillion over a decade.

Exelis, a company spun off from ITT Corp (ITT.N: Quote) in 2011, said in September it would work more closely with the U.S. Air Force and Navy, which have fared better in recent defense spending cuts than the Army.

The company makes antennas for military aircraft, domes for Navy ships, sonar systems and GPS navigation systems. Harris's products include intelligence, surveillance and reconnaissance systems.

Harris Chief Executive William Brown, who will lead the combined company, said the deal was "transformational" and would expand scale, technology and customer base in existing markets.

In an interview with Reuters, Brown described the acquisition as "straight down the fairway" — a combination of two companies with similar cultures and many of the same customers.   Continued...

An undated photo courtesy of Exelis.   REUTERS/KHandout