M&A

CFO to Pilot L-3 Communications

The death of the aerospace and defense company's CEO raised questions about how executives disclose illness. But a bigger question is what will now...
Roy HarrisJune 12, 2006

The death of L-3 Communications CEO Frank C. Lanza last week, followed by CFO Michael Strianese’s elevation as interim CEO, raised major business questions — including how candid companies should be about the medical problems of key employees. Much was made of the 74-year-old Lanza’s declining health in recent months, even as he protested that he did not have esophageal cancer, and was healing. (Scroll down here for our look at the “Materiality of Health.”)

Of more immediate interest, however, may be what the loss of L-3’s founding chief might mean for aerospace and defense M&A.

Industry observers suggested that losing Lanza ripened L-3 for sale to one of the industry’s Big Five — Lockheed Martin, Boeing, Northrop Grumman, General Dynamics or Raytheon — or a piecemeal sale of its parts.

A month ago on CFO.com, as speculation about Lanza’s health was growing, Strianese himself weighed in on L-3’s acquisition prospects and M&A in the industry in general.

Strianese saw hefty high-tech defense and aerospace merger activity in the future because of the current political environment, with military intelligence, surveillance and anti-terrorism technology especially attractive. L-3, said Strianese, was looking closely at electro-optical and infrared technologies and robotics, including “generally small, privately-owned companies with specialized product areas.”

Last year L-3 had made one of the industry’s larger acquisitions: its $2.65 billion purchase of Titan Corp., a provider of national security technical support. But Strianese called the smaller, $300-million range “a product-rich environment for M&A” in aerospace and defense this year, noting that L-3 had done 11 smaller deals, too.

While the Big Five are too big to merge, Strianese conceded that his own company — what he calls a super-mezzanine player — could be gobbled up by any one of the five “without a lot of government pushback.”

Not that he was predicting that. Indeed, Strianese noted that L-3 had been created from cast-off parts of defense companies that were rebuilding themselves around their core operations. Thus, the L-3 that has developed from bringing together high-tech defense and commercial-aviation systems might not be attractive for one of the Big Five to acquire in one gulp.

If bigger companies don’t target it, L-3 itself will be growing more, looking for mid-sized, high-tech defense acquisitions of its own. The additions could be made “vertically or horizontally,” Strianese said.

L-3 co-founder and former CFO Robert V. LaPenta, still a large shareholder in the company, was quoted in Saturday’s Wall Street Journal as saying that L-3 may look outside for a new CEO, even though the company’s complex organization makes it “an unwieldy structure for an individual not indoctrinated in the L-3 culture.”

The 50-year-old interim CEO has been a key player at the company since it was created in 1997.

L-3’s new nonexecutive chairman, lead director Robert Millard of Lehman Brothers Holdings Inc., will serve on a search committee to hire a permanent CEO.

Of course, Strianese, who keeps the finance-chief post along with his interim CEO duties, could be in the running. He’d hardly be the first CFO these days to move to the top spot.

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