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CEO Q&A: L3’s Chris Kubasik and Harris’s Bill Brown
BY MARCUS WEISGERBER
Soon after the companies announced plans to form the world's 7th-largest defense firm, the CEOs rang up for a joint interview.
On Sunday, just after L3 Technologies and Harris Corp. announced their planned merger next year, I chatted with CEOs Chris Kubasik and Bill Brown about their plans to form L3 Harris Technologies, which would be the world's 7th-largest defense firm. Here are some excerpts.
Q. How did this come together?
Brown: Chris and I have known each other for a number of years here, and a lot of it started more socially, not from a business perspective. We work in the same space as complimentary businesses, complementary portfolios. Same [main] customer. You know we realized, given where we stack up in the defence hierarchy, this would be a great potential combination. We've been discussing it through the balance of this calendar year. [It] really picked up steam in the summer and were able to bring it forward here towards middle October.
Q. Why a merger rather than an acquisition by one partner?
Kubasik: Both companies are quite strong, and we're both on an upswing, and we looked at all the different stakeholders from the customers, the shareholders and the employees. And in our relative size and market value, a merger vehicle seems to be the absolute right way to go here. True partnership, as you've probably seen. 50/50 board. Bill and I have our leadership laid out clearly. It's absolutely the right way to do this. We're quite proud that we're able to pull it off. And I think it's the best way to serve all the stakeholders.
Q. Bill is going to be CEO until a transition to Chris in a couple of years. How will that work? And what happens to L3's New York office if the headquarters moves to Florida?
Brown: The combination in bringing these two great companies together is going to take a lot of work. So Chris and I will partner on this, in leading the company [and] clearly doing a lot of the integration. We're going to chair the integration committee together. I'll have responsibility for the enterprise functions, and Chris will keep an eye on the ball in what we do operationally in the business segments making sure that through to the integration we don't miss a beat in our growth agenda, meeting expectations of customers, delivering on programs. It's going to be a shared partnership in bringing the companies together.
Kubasik: On a combined basis, we have several thousand employees in the state of New York, a lot in Rochester, of course Long Island and the surrounding areas. We got to do to what we believe is best for the business. When you look at the Space Coast of Florida, the 7,000 or so employees and infrastructure in the Melbourne area, it's an easy decision. We'll be transitioning from the headquarters from New York and taking the best of the best and moving to Florida. At some point the Manhattan office will either be significantly scaled down or ultimately closed.
Q. Will the combined company divest or combine overlapping sectors?
Bill Brown: Very high and complimentary portfolios. So we see very, very, very little overlap.
Q. L3 has been on an acquisition spree in recent years. Should we expect more, perhaps in the maritime sphere?
Kubasik: Job one is going to be the integration for the first couple years, so there will be very, very few, if any, acquisitions the first couple of years. They would have to be a once-in-a-lifetime opportunity. We're going to focus first and foremost on integrating this company. Once we get this integrated, which is a three-year program, we'll update and modify the strategy as appropriate.
Correction: An earlier version of this article misstated the proposed merged company's rank by revenue among global defense firms.
This Q&A is part of the weekly Global Business Brief newsletter by Marcus Weisgerber. Find the rest of this week's issue here,and subscribe to get it in your inbox, here.
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Japan to export defense tech to Vietnam under new agreement
HANOI, Vietnam — Japanese Prime Minister Yoshihide Suga, in his first overseas summit since taking office last month, agreed with his Vietnamese counterpart to step up defense and security cooperation in the face of China's expanding influence in the region. In talks in Hanoi on Monday, Suga and Vietnamese Prime Minister Nguyen Xuan Phuc set a basic agreement allowing Japan to export defense equipment and technology to Vietnam. Japan has been pursuing such pacts in recent years to bolster ties with Southeast Asian countries and sustain its own defense industry. Suga said his four-day trip to Vietnam and later Indonesia was key to pursuing multilateral economic and security cooperation to counter China's growing power and protect sea lanes in disputed areas of the South China Sea. “Vietnam is crucial to achieving our vision of ‘the Free and Open Indo-Pacific,' and our valuable partner,' ” Suga told a news conference after his meeting with Phuc. “Japan, as an Indo-Pacific nation, will continue to contribute to the peace and stability in this region.” Suga said Vietnam, at the center of the region, was the most suitable destination for his first trip abroad as Japan's leader. Neither of the two leaders mentioned China by name in their news conference. Phuc said the peace and stability of the South China Sea should be protected by the rule of law, not unilaterally by force or threats. “Vietnam appreciates that Japan, one of the world's leading powers, is actively contributing its efforts to maintain peace and stability in the region and in the world,” Phuc said. In a speech later Monday at Vietnam-Japan University, Suga said that Japan's “Free and Open Indo-Pacific” concept and “ASEAN Outlook on the Indo-Pacific,” formulated by the Association of Southeast Asian Nations in 2019, share values such as rule of law, openness, transparency and freedom. Suga expressed strong support for their vision, and said together Japan and the Association of Southeast Asian Nations can achieve a peaceful and prosperous future. “Unfortunately in this region, there is a move in the South China Sea that goes against the rule of law and openness stated in this ASEAN Outlook, and Japan strongly opposes any attempt that escalates tensions in the South China Sea,” Suga said in his speech, hinting at China's growing assertiveness in the area. Japan already has defense equipment transfer deals with the U.S., Britain and Malaysia, among other countries. Vietnam is a 12th partner, while Japan is still negotiating deals with Indonesia and Thailand. In its first actual delivery of such exports, Japan in August exported a radar surveillance system to the Philippines. Details of possible equipment sales were not mentioned, but Suga called the agreement “a major step” for a bilateral defense cooperation, saying he expects further developments. Japan partially lifted its ban on military equipment and technology transfer in 2014 as part of former Prime Minister Shinzo Abe's efforts to build Japan's defense capabilities. Suga and Phuc signed other agreements to cooperate in a range of economic fields and on anti-terrorism measures. The two sides also agreed to ease entry bans and allow short-term business visits and reopen flights between Vietnam and Japan. Such travel has been very tightly restricted due to the pandemic, but both countries have managed to somewhat stabilize COVID-19 outbreaks. Suga also promised to provide support for Vietnamese workers in Japan affected by the pandemic's hit to the economy. Vietnamese accounts for more than half of the foreign workers Japan has accepted in recent years to make up for its declining and aging population. Japan is one of Vietnam's top trading partners with two-way trade of $28.6 billion so far this year. Japan is also Vietnam's largest overseas aid donor, providing $23 billion as of 2019 and accounting for more than a quarter of Vietnam's foreign loans. The government has been trying to entice Japanese companies to invest in Vietnam and other Southeast Asian countries to lessen Japan's dependence on manufacturing and other businesses in China. On Monday, Japan and Vietnam agreed on the need to cooperate on diversifying supply chains — a lesson Japan learned from its dire shortages of surgical masks and protective gowns earlier this year due to heavy dependence on Chinese imports. In August, Vietnam agreed to buy six coast guard patrol boats worth $345 million from Japan. The country is seeking to improve its maritime defenses amid China's continuing development and militarization of artificial islands in contested waters of the South China Sea. Progress in talks between ASEAN and China over the disputes appears to be at a standstill. Suga's predecessor Abe also chose Vietnam as the first country he visited after taking office. Suga is the first foreign head of a state to visit Vietnam since the country closed its borders to contain COVID-19. https://www.defensenews.com/global/asia-pacific/2020/10/19/japan-to-export-defense-tech-to-vietnam-under-new-agreement/