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Shares of Viasat gained as much as 48 percent Monday on news the Carlsbad, California-based satellite broadband service provider is selling its Link 16 Tactical Data Links product line for approximately $1.96 billion in cash to defense contractor L3Harris Technologies.
Link 16 TDL integrates military aircraft, ground vehicles, surface vessels and operating bases, enabling warfighters across multiple domains to securely share voice and data communications. The business employee 450 people and generates approximately $400 million in annual sales.
The unit, which currently represents about 35% of total revenue from Viasat's Government Systems segment, includes Multifunctional Information Distribution System (MIDS) platforms and associated next-generation Link 16 terminals and handheld radios, as well as the Link 16 to space business.
The MIDS platforms and associated terminals are installed in more than 20,000 U.S. and allied platforms around the world.
|LHX||L3HARRIS TECHNOLOGIES INC.||218.41||+10.36||+4.98%|
The cash acquisition is expected to result in $1.8 billion in net proceeds for Viasat after estimated taxes, fees, and other expenses. The company plans to use proceeds from the sale to reduce debt by 74% and net leverage by 67%.
Viasat took on debt in November 2021 when it agreed to acquire British satellite telecommunications company Inmarsat in a transaction valued at $7.3 billion, comprised of $850.0 million in cash, approximately 46.36 million shares of Viasat common stock valued at $3.1 billion, and the assumption of $3.4 billion of net debt.
Viasat expects sales proceeds from the Link 16 TDL sale to fully fund a path to positive free cash flow, including the proposed Inmarsat transaction, with lower leverage and less cash interest.
"This transaction will transform our balance sheet, reduce cash interest obligations, and sharpen strategic focus while enabling continued growth opportunities for the Link 16 business and assuring our customers of a competitive, innovative and reliable source for their future needs," Viasat board chairman and CEO Mark Dankberg said in a statement. "The Link 16 Tactical Data Links business has been an important contributor to Viasat's growth and earnings and the transaction recognizes the value created by our outstanding team."
The sale is expected to close in the first half of calendar year 2023, subject to regulatory approvals and customary closing conditions.
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The transaction will be structured as an asset purchase, resulting in $500 million in gross tax benefits for L3Harris Technologies. The deal is valued at 14 times last 12 months adjusted earnings interest, taxes, depreciation, and amortization (EBITDA), net of tax asset and with run rate cost synergies.