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Merger creates third-largest defense contractor in Colorado Springs

By: The Associated Press
February 7, 2015 Updated: February 7, 2015 at 4:15 am
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MELBOURNE, Fla. - Communications and information technology company Harris is buying Exelis in a cash-and-stock deal valued at about $4.4 billion that will create the third-largest defense contractor in the Colorado Springs area with more than 900 employees.

The new company will have about 23,000 workers worldwide, including 9,000 engineers and scientists.

Exelis, the former defense unit of manufacturer ITT Corp., makes night-vision goggles and anti-bomb products and does technical work for the government.

The deal comes less than five months after Exelis spun off its government services business into a separate public company, Vectrus Inc., which is based in Colorado Springs.

In Colorado Springs, Exelis has about 700 employees working primarily in information systems, such as managing networks and systems engineering, while Harris employs more than 200 working on contracts with the Air Force Space Command on space communications systems and information technology services.

Among defense contractors in the Colorado Springs area, only Lockheed Martin Corp. and Northrop Grumman Corp. have more employees.

Harris Chairman, President and CEO William Brown said in a statement Friday that the companies have complementary businesses, with the acquisition making it stronger to compete against rivals and providing greater scale.

Harris Corp. is based in Melbourne, Fla., while Exelis Inc. is based in McLean, Va. There are plans to consolidate the companies' headquarters and for senior members of Harris and Exelis to be part of the combined company's management.

Exelis shareholders will receive $16.625 in cash and 0.1025 of a share of Harris common stock for each Exelis share they own. That would put the deal value at $23.75 per Exelis share. The companies put the enterprise value of the deal at $4.75 billion. That figure includes assumed debt.

Harris stockholders will own about 85 percent of the combined company, with Exelis shareholders owning the remaining 15 percent.

The boards of both companies approved the deal unanimously. The buyout still needs approval from Exelis shareholders and is targeted to close in June.

Exelis shares rose $6.42, or 36.3 percent, to $24.13 in heavy trading Friday; more than a fourth of the company's shares changed hands Friday, making it the sixth most-traded U.S. stock and the biggest gainer of the day. Harris shares rose 9.6 percent, to $76.18.

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Gazette reporter Wayne Heilman contributed to this report.

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