CAE Inc.
CAE -1.85%
agreed to buy L3Harris Technologies Inc
LHX -2.72%
Military training division for $ 1.05 billion, companies said Monday, to an extent that would expand the Canadian aerospace company’s defense business.
The unit includes three main businesses: Link, which provides military training in the US; Doss Aviation, which provides flight training to the United States Air Force; and AMI, which designs and manufactures simulator hardware. The company, which has annual revenues of about $ 500 million, is expected to be based in Tampa, Florida, after the deal closes, the company said.
The Wall Street Journal reported Sunday that the deal was imminent.
CAE, based in Saint-Laurent, Quebec, expects the deal to be a profit per share and expects cost savings of between C $ 35 million and C $ 45 million a year in the second year after closing. It will be funded through a private placement of approximately C $ 700 million, equivalent to about $ 549.4 million.
CAE has a market value of about C $ 9.5 billion. It has historically specialized in flight simulators and training devices and has expanded its reach through several offerings in recent months, although none is close to the size of the offer being discussed for the L3Harris unit.
The Canadian company is the market leader in pilot training for commercial aircraft and manufactures flight simulators for Boeing Co.
BA -2.05%
737 MAX and other aircraft, which has left it severely affected by the fall of the Covid-19 pandemic on world air travel.
CAE, which also produces sanitary equipment such as fans, has tried to expand and improve the margins of its defense business by hiring two senior L3Harris executives.
L3Harris was formed by the 2019 merger of Harris Corp. and L3 Technologies. Maintenance of a C-130H at an L3Harris facility in Waco, Texas.
Photo:
Business Wire / Associated Press
L3Harris, based in Melbourne, Florida, which has a market value of $ 38 billion, was formed by the 2019 merger of Harris Corp. and L3 Technologies Inc. It was at that time the largest merger of the defense industry, with a transaction value. of more than $ 15 billion. It was overshadowed by Raytheon Co.’s 2020 combination. and United Technologies Corp.
RTX -1.81%
to form Raytheon Technologies Corp.
The outlook for the defense industry has improved during the pandemic, an investment after years in which growth in aerospace and commercial spending looked more promising. Companies with a large share of revenue that depend on business spending, including Boeing and its suppliers, have suffered due to the sharp reduction in business and leisure travel.
The sale of the military training business would lead L3Harris to achieve most of its goal: to divest itself of assets that accounted for up to 10% of sales and use the entire proceeds to repurchase shares. It sold its airport security unit for $ 1 billion to Leidos Holdings Inc.
LDOS -0.76%
last year, as well as some smaller companies.
L3Harris also has a division that trains airliner pilots and builds flight simulators for the 737 MAX and other aircraft.
Goldman Sachs & Co. LLC was CAE’s exclusive financial advisor and with RBC Capital Markets advised on private locations. CAE’s legal counsel was DLA Piper and Norton Rose Fulbright. Morgan Stanley & Co. LLC was the financial advisor to L3Harris and Sullivan & Cromwell LLP was its legal advisor.
—Doug Cameron contributed to this article.
Write to Cara Lombardo a [email protected]
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It appeared in the March 1, 2021 print edition as the “Simulator Maker Pursues Training Unit”.