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Congress has passed the National Defense Authorization Act for 2018, representing an 18 percent increase in defense spending.
Harris Corporation and L3 Technologies agreed to an all stock merger of equals, creating the United States’ sixth largest defense contractor with annual sales around $16 billion, the companies announced on Sunday.
The deal is the latest example of how increased defense spending under U.S. President Donald Trump and the Republican-led Congress is driving contractors to pursue mergers so they have more scale to bid on bigger projects, spanning everything from upgrading outdated computer systems to space exploration.
The all-stock deal values L3 at $15.7 billion, slightly above its market capitalization as of the end of trading Friday of $15.3 billion. The deal creates a military communications and defense electronics conglomerate with a market value of about $34 billion.
The merger follows a rash of deals over the past 18 months among defense contractors. Last year, United Technologies Corp acquired Rockwell Collins for $30 billion, and in March, TransDigm Group continued its acquisition spree with a $525 million deal for Extant Components Group.
An increased U.S. defense budget and a two-year budget deal reached earlier this year that lifted caps on defense spending have also encouraged buyers.
The combined company, L3 Harris Technologies, Inc., 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 over 100 countries, the companies said.
The combined company is expected to generate net revenue of approximately $16 billion, EBITDA of $2.4 billion and free cash flow of $1.9 billion, the companies said.