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Feb 6 (Reuters) - Harris Corp said it would buy Exelis Inc in a deal valued at about $4.75 billion, combining two big suppliers to the U.S. military at a time when the government is squeezing spending on defense.
Exelis, spun off from ITT Corp in 2011, makes antennas for military aircraft, domes for Navy ships, sonar systems and GPS navigation systems.
The company said in September it would work more closely with the U.S. Air Force and Navy, which have fared better in recent defense spending cuts than the Army.
Harris’s products include intelligence, surveillance and reconnaissance systems for customers including the U.S. National Security Agency and the Department of Defense.
The company’s website cites a 2012 report that ranked it the 11th largest supplier to the U.S. government.
U.S. defense contractors including Lockheed Martin Corp and General Dynamics Corp have cut costs and increased exposure to international markets as the Pentagon tries to reduce spending by $1 trillion over a decade.
Harris is offering $16.625 in cash and 0.1025 of its shares for each Exelis share.
The total offer of $23.75 per share, a premium of about 34 percent to Exelis’ Thursday close, values Exelis at about $4.44 billion based on shares outstanding as of Oct. 28.
Exelis shares traded as high as $24.05 before the bell on Friday. Harris’s shares were up 7.6 percent at $74.75.
Harris shareholders will own about 85 percent of the combined company, which will have $8 billion in revenue and about 23,000 employees globally.
Exelis spun off its lower-margin government services business last year to focus on its arms business.
Chief Executive Dave Melcher, a retired army officer, said in September he expected Exelis’ revenue to be at least flat in 2015 despite a projected 4 percent drop in the base U.S. defense budget.
Morgan Stanley & Co LLC is adviser to Harris and Sullivan & Cromwell LLP is principal legal counsel. J.P. Morgan Securities LLC is advising Exelis, and Jones Day is legal counsel. (Reporting by Ankit Ajmera and Subrat Patnaik in Bengaluru; Editing by Saumyadeb Chakrabarty)