Harris Corporation and L3 Technologies, Inc. announced an agreement to combine the two companies in an all stock “merger of equals,” calling the new entity L3 Harris Technologies.

The new company, which will have headquarters in Melbourne, Florida, will remain focused on the defense market, becoming the sixth largest defense contractor in the U.S. and among the top 10 worldwide, according to the companies.

For calendar year 2018, the net revenue of the two is estimated to be approximately $16 billion, with EBIT of $2.4 billion and free cash flow of $1.9 billion. The two companies have a combined market cap of some $34 billion, approximately 48,000 employees (pre-synergies) and customers in more than 100 countries.

In a release announcing the proposed deal, the companies outlined the rationale for and benefits of the combination:

• Increased scale with a well-balanced portfolio of complementary franchises.
• Shared culture of innovation and operating philosophy creates stronger platform to drive growth.
• Approximately $500 million of annual gross pre-tax cost synergies or $300 million net of savings returned to customers in the third year.
• Strong balance sheet with significant cash flow generation, targeting $3 billion in free cash flow by the third year.

The merger agreement, unanimously approved by the boards of directors of both companies, calls for L3 shareholders to receive a fixed exchange ratio of 1.3 shares of Harris common stock for each share of L3 common stock. After close, Harris shareholders will own approximately 54 percent and L3 shareholders will own approximately 46 percent of the combined company.

Bloomberg quoted Robert Stallard, an analyst at Vertical Research Partners, saying Harris is paying about a 5 percent premium to L3.

The merger is expected to close in the middle of calendar year 2019, assuming shareholder and regulator approvals.