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Harris to Acquire Leitch

Harris Corp. has announced plans to purchase broadcast technology provider Leitch Technology Corp. in a deal worth approximately $450 million. Harris says it expects the transaction will be completed by November.

What made the deal attractive to Harris, according to company executives, was the complementary nature of the companies' two product lines. Harris is the broadcast industry's largest provider of transmission and automation hardware, while Toronto-based Leitch, which was founded in 1971, is one of the leading manufacturers of master control, storage and digital processing and distribution gear. Both companies have made recent acquisitions to expand and solidify their product line; Harris purchased Encoda Systems in 2004 for $340 million, while Leitch acquired Pottstown, Penn.-based test and measurement company Videotek in 2004 and fellow Canadian graphics developer Inscriber Corp. earlier this year.

The Harris/Leitch combination significantly expands Harris' reach into the broadcast market, according to Harris CFO Brian Roub.

"Following our acquisition of Encoda Systems in November 2004 and now with the acquisition of Leitch, we will have successfully repositioned Harris Broadcast from serving a $500 million TV market, and growing it 3-4 percent per year, to now being able to serve a $2.4 billion TV market."

Among the chief drivers spurring the Leitch acquisition was the Leitch management team, headed up former Grass Valley chief Tim Thorsteinson. Since coming onboard more than 18 months ago, Thorsteinson has slashed costs and re-focused the company's strategy to developing and introducing new products. The result has sweetened Leitch's bottom line: pro forma operating income excluding restructuring charges increased from a loss of US$14 million in fiscal 2004 to a profit of US$7 million in fiscal 2005, which ended April 30.

"What Tim and his team have been able to do is demonstrate that the products that they have designed and developed are paying off," Wensinger said. "They're seeing good revenue growth, they're seeing good margin expansion and this team is being rewarded in the last year; you saw with their stock price moving, that the market is seeing that."

Harris also expects a growing demand for HD master control and HD studio gear, a sector that Leitch is number one or two in worldwide markets. Roub pegs annual worldwide TV market growth at 8-10 percent.

"The underlying driver for this market growth in the broadcast segment is the conversion to HD master control and HD production studios by networks and broadcast stations. There is clearly a lot of market growth ahead of us as customers continue to move down the line of conversion," Roub said.

When asked about potential facility closings or layoffs, Harris CEO Howard Lance said that "there's not a lot of overlap so we don't expect a large amount of redundancies to result." As for the future of the Leitch name, Lance noted that although the company expects to "co-brand" the Leitch name for the time being, "their brand has value and we will look very closely at that before making any changes."