Harris Corporation To Divest Broadcast Business

Posted by Joe Zaller
May 01 2012

After much rumor and industry speculation, Harris Corporation announced today that it will sell the company’s broadcast communications division.

The announcement was made in conjunction with the release of the company’s results for the first quarter of 2012, and just a few months after the company said it would shut down its cyber integrated solutions business.  Both Harris broadcast and Harris cyber integrated solutions were part the company’s Integrated Network Solutions (INS) unit, which was created last year when Harris strategically realigned its business segments

“The decision to divest Broadcast Communications resulted from a thorough review of our business portfolio, which determined that the business is no longer aligned with the company’s long-term strategy,” said new Harris Corp CEO William Brown. “The plan to sell these assets supports our disciplined approach to capital allocation, and we intend to use the proceeds to return cash to shareholders and invest in growing our core businesses.”

“The combination of a lack of effective integration by the company over the last decade, coupled with a market outlook that is not as promising today as once believed led us to believe that the business is best owned by another party.

“Although broadcast is no longer core to our company, we believe the business has the potential for strong growth and margin expansion, is led by a solid leadership team, and has long term value for someone who brings a focused approach to the broadcast and media market.”

The company telegraphed its intentions last quarter when said that despite improving performance in the broadcast division there was still work to do.  “In Broadcast, we bought several companies over the years which were never fully integrated. While we continue to see good traction on the top line, our cost structure, driven by complexity, lack of productivity and growth investments, isn’t where we need it to be and it’s preventing us from achieving acceptable returns. Our team is now laser-focused on developing a strategy for this business that maximizes shareholder value.”

In connection with the process of evaluating strategic alternatives for Broadcast Communications, the company recorded in the third quarter a non-cash charge of $407m after-tax, or $3.62 per diluted share, to write down a significant portion of the goodwill and other long-lived assets in Broadcast Communications, resulting in the GAAP loss from continuing operations. Following the close of the quarter, the company approved a plan to divest Broadcast Communications. As a result, current and prior period financial results for Broadcast Communications will be reported as discontinued operations beginning with the fourth quarter of fiscal 2012.

Brown said that Harris had only recently kicked off the sale process for its broadcast business, but that he expects a transaction to take place by the end of 2012. 

The company says it will use approximately $200m from the sale of the broadcast division to buy back its own stock. However, Brown made it clear that Harris “fully expects that the proceeds [from the sale of the broadcast business] will be substantially higher than $200m”, although he declined to speculate on a valuation or even a value range.

In response to a question from Barclays analyst Carter Copeland about the timing of the sale of the company’s broadcast business, Brown said that the divestment of the broadcast business was “Not a new topic with our board, it has been discussed quite frequently over the last several years given where broadcast happens to be… it’s been an active discussion with our board on is it a fit, how do we make it better, what is the timing if we decide to exit… we had a long conversation about it… in our view, given the tough environment that we are facing it’s important for us to focus our resources including our management time and attention on the businesses that we know to be core to our company so we can be successful into FY 2013 and beyond.”

Other analysts appeared pleased with the announcement.  For example, Lazzard Capital Markets analyst Michael Lewis, said on the conference call “I have to applaud you on this broadcast divestiture, it just never made sense to me.”

 

Performance of Harris Broadcast

Because Harris broadcast is now part of the company’s INS division, it had been difficult to know its precise financial performance.  The last time full financials for Harris broadcast were available was at the end of the company’s 2011 fiscal year (released in August 2011), when the Harris broadcast communications division had revenue of $553.8m, an increase of 14% versus its performance in fiscal 2010.  At that time, then Harris CEO Howard Lance, the broadcast division in fiscal 2011 had shown “excellent growth” and has “vastly improved” over last year.  It was “profitable both for the quarter and for the fiscal year in total.”

Today the company disclosed that its revenue for the third quarter of fiscal 2011 was $111m, a decline of 14% versus the same period a year ago.  Harris CFO Gary McArthur said that the company’s broadcast business experienced weaker demand in North America and longer international sales lead time, which led to a decline in revenue and “resulted in a non-GAAP operating loss of $4m compared to operating income in the prior year of $2m.”

By looking at the company’s revised financial guidance, it is possible to estimate the revenues of the broadcast business.  Harris had previously said that its total revenue for the full fiscal year 2012 would be ~$6 Billion.  Today it said that it expects to see revenue of $5.42 Billion, excluding the broadcast and cyber solutions businesses. This implies that the combined broadcast and cyber businesses are expected to have combined revenues of approximately $555m for the full fiscal year 2012. However the size of the cyber business has not been disclosed.

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Related Content:

Press Release: Harris Corporation Reports Fiscal 2012 Third Quarter Results

Harris 8-K Filing – Restates Fiscal 2011-12 Revenue on Pro Forma Basis (Without Broadcast and Cyber Integrated Solutions)

Harris Fiscal Q3 2012 Analyst Presentation

Harris Fiscal Q3 2012 Conference Call Transcript

Harris Broadcast Revenue and Income Rise in Q2 2012, Says It’s Laser Focused on Maximizing Shareholder Value.

Harris Corporation Shuts Down Cyber Integrated Solutions Business

Harris Corporation Strategically Realigns Business Segments; Broadcast Communications Rolled into New “Integrated Network Solutions” Unit

Harris Corporation Names New President and CEO

 

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2 Responses

  1. […] Zaller, president of market research firm Devoncroft Partners (San Diego, CA) said Harris will use approximately $200 million from the sale of the broadcast […]

  2. Reader says:

    I am curious who is going to buy that stake…
    Cisco and Ericsson are well equipped, Harmonic might have too big of an overlap. So who is left? Some private equity fund slicing up the business or restructuring it for an IPO?

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