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L3Harris (LHX) Set to Offload Business Segments for $1.45B

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L3Harris Technologies Inc. (LHX - Free Report) has recently entered into two separate agreements to divest its Military Training business to CAE Inc. (CAE - Free Report) and its Combat Propulsion Systems and related businesses to RENK AG. The twin transactions will fetch L3Harris a combined sum of $1.45 billion.

Details of the Divestiture Agreement

Under the first agreement, L3Harris will sell its Military Training business to CAE for $1.05 billion in cash. Under the second agreement, RENK AG will acquire L3Harris’ Combat Propulsion Systems and related businesses for about $400 million in cash. Both transactions are subject to customary closing conditions, including receipt of regulatory approvals, and are expected to close during the second half of 2021.

Rationale Behind the Agreements

In recent times, divestment of businesses in the defense space has become increasingly popular as it enables companies to increase focus on core businesses, eliminate redundancies, and improve operational efficiency and cost structure. Furthermore, divestments have been pivotal for defense companies in order to focus on more profitable assets with higher returns and pave the way for better market opportunities.

Furthermore, due to the prolonged and ongoing COVID-19 pandemic, divestment decisions and activities have enabled companies to assertively streamline their portfolio of businesses, reduce debt and restructure supply-chain activities, which have been taking a major hit since the pandemic began.

How Will These Divestments Benefit L3Harris?

With its recent divestment announcements, L3Harris continues its strategy of focusing on growing its core businesses and technologies, and reshaping the portfolio. Quantitatively, as of February 2021, the company has completed divestitures with a combined $1.4 billion of revenues for $2.5 billion in expected proceeds. In the context of the latest two divestment deals, L3Harris intends to use the $1.45-billion proceeds on share repurchases.

Other Defense Majors Adopting Divestment Activities

Considering the current volatile market situation on a global scale, there are quite a few defense players that have taken up divestment activities in recent times to boost their balance sheet.

In December 2020, Northrop Grumman (NOC - Free Report) signed an agreement to sell off its federal IT and mission support services business to Peraton, an affiliate of Veritas, for $3.4 billion in cash. The divestment is in line with the company’s strategy of focusing on growing its core businesses, driving shareholder value and executing its capital allocation strategy.

Raytheon Technologies (RTX - Free Report) , another big name in the defense space, signed a deal in October to divest its cybersecurity subsidiary, Forcepoint, to private equity firm, Francisco Partners. The divestment is expected to fetch Raytheon around $1.5 billion in gross proceeds.

Zacks Rank & Price Performance

L3Harris carries a Zacks Rank #3 (Hold), at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Shares of L3Harris have gained 2.4% in the past six months compared with the industry’s growth of 5.8%.

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