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Gores pays $225M to acquire Harris broadcast business

by Chris Nolter  |  Published December 6, 2012 at 4:50 PM
Communications systems developer Harris Corp. announced the $225 million sale of its broadcast unit to Gores Group, ending a process that it announced this spring.

The amount is a blip for Harris. The Melbourne, Fla., company develops communications systems and provides information technology services to governments and corporations, and generated $5.5 million in fiscal year 2012 sales. The divestiture will clean up some loose ends.

Harris marked the unit for sale in May, and has discussed exiting broadcast and its Cyber Integrated Solutions hosting business throughout the year.

The price includes $160 million in cash, a $15 million subordinated note and up to $50 million in additional payouts based upon the performance of the business.

One analyst said that Harris had not previously indicated how much it hoped to raise through the sale. He suggested that the price was probably around the low end of the company's range, noting that Harris had previously said it would use up to $200 million of proceeds from a divestiture to repurchase shares. The company is drawing upon its free cash flow to repurchase an additional $200 million worth of shares.

It is also difficult to gauge the transaction without knowing how aggressive the provisions are for the earnout that provides the final $50 million of the payment.

Chris Quilty of Raymond James & Associates Inc. wrote that, even if the price is "somewhat disappointing," the sale represents a "strategic milestone" for Harris.

"Investors may express some disappointment with the sale price of the Broadcast business, as Harris had spent some $850 million since the early 2000's building the [roughly]$500 million run-rate business, and had recently written down its net book value to $287 million," he wrote.

"Nonetheless, the sale of the Broadcast business removes an ongoing source of operating losses, eliminates a source of management distraction," Quilty added, "and leaves Harris with a cleaner operating model."

Harris aims to complete the sale early in 2013.

The company said during a late-October earnings call that it expects to complete the sale of the Cyber Integrated Solutions data center soon.

Harris general counsel Scott Mikuen led an in-house team that included Robert Johnson and Kim Nash.

Morgan Stanley bankers Todd Giardinelli and Phil Ingle advised the seller, which retained Jones Day lawyers Sanjiv Kapur and Robert Schroeder.

Gores Group managing director Ryan Wald and general counsel Eric Hattler worked on the deal with Latham & Watkins LLP lawyers Paul Sheridan, Cory Tull and Travis Shrout.

Tags: Cyber Integrated Solutions | Gores Group | Harris Corp.

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