By E. Darius Sturmer, J.D.
Combination would create sixth-largest defense contractor, but divestiture of night vision business would preserve competition for critical component in devices used by U.S. military, Justice Department says.
A proposed merger between Harris Corporation and L3 Technologies Inc.—the only two suppliers of U.S. military-grade image intensifier tubes for night vision goggles and weapon sights bought by the Department of Defense—was cleared for approval by the federal government and Canadian authorities, subject to the divestiture of Harris’ night vision business. The merger, proposed in October 2018, would create the sixth-largest defense contractor in the United States (U.S. v. Harris Corp., Case No. 1:19-cv-01809).
Harris, headquartered in Melbourne, Florida, provides night vision devices and image intensifier tubes, tactical communications solutions, electronic warfare solutions, and space and intelligence systems. In 2018, Harris had sales of approximately $6.2 billion. L3, based in New York City, also provides night vision devices and image intensifier tubes, as well as intelligence, surveillance, and reconnaissance systems; aircraft sustainment, simulation, and training; and security and detection systems. Last year it had sales of approximately $10.2 billion. Image intensifier tubes, the government notes, are the critical component in night vision devices, amplifying visible light to increase situational awareness, threat detection, and mission performance of American soldiers and aircrews operating in low-light environments.
Citing concerns that "[t]he merger, as originally structured, would have given the combined company a monopoly over image intensifier tubes," the Department of Justice filed a complaint in the federal district court in Washington, D.C. on June 20, 2019 to block the transaction. At the same time, however, it filed a proposed settlement that, if approved by the court, would resolve the competitive harm alleged in the lawsuit.
According to the Justice Department, competition between Harris and L3 has resulted in lower prices, higher quality, and shorter delivery times, and it has fostered innovation leading to the development of image intensifier tubes with higher sensitivity and resolution. The complaint filed by the Justice Department alleges that the combination of Harris and L3 would leave the DoD without a competitive alternative for this critical input and likely result in higher prices, less favorable contract terms, and reduced research and development efforts.
Under the terms of the proposed settlement, Harris and L3 must divest Harris’s entire night vision business, including its manufacturing facility in Roanoke, Virginia, to an acquirer approved by the United States.
Canada Competition Bureau Statement. Canada’s Competition Bureau also announced that it has issued a No Action Letter (NAL) to the companies confirming that it did not presently intend to challenge the proposed merger. The agency explained that while it had reached the same conclusion as the Justice Department regarding the anticompetitive effects of the proposed combination, the remedy obtained by the U.S. regulator would resolve its own competition concerns with the transaction. Thus, the terms of the NAL are subject to the implementation of the consent decree between the Justice Department and the companies.
Attorneys: Kevin Quin for Department of Justice. Joseph Matelis (Sullivan & Cromwell LLP) for Harris Corp. Peter Guryan (Simpson Thacher & Bartlett LLP) for L3 Technologies, Inc.
Companies: Harris Corporation; L3 Technologies Inc.
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