WASHINGTON — Lockheed Martin is shedding its Information Systems & Global Solutions (IS&GS) businesses, combining them with Leidos via a Reverse Morris Trust, the companies announced Tuesday.
The deal, which is pending and subject to regulatory approval, would involve Lockheed creating a subsidiary out of its IS&GS businesses to merge with Leidos to create a new company, producing $5 billion of value for Lockheed. Lockheed shareholders would receive 50.5 percent of shares in the new company, valued at roughly $3.2 billion, and Lockheed will receive $1.8 billion in cash.
Together, the combination of IS&GS and Leidos would create a $10 billion portfolio, said Leidos CEO and chairman Roger Krone in a prepared statement.
"The combined company will be a more diversified leader in the markets we serve, giving us the scale and access to markets that enable further growth. The new company will be better able to offer cost-effective solutions to our customers," he said.
""The combination of our proven IT and technical services businesses with Leidos will create a new leader in the government IT sector with a diversified portfolio, greater scale and improved efficiency. The new business will be positioned for growth while unlocking value for our stockholders," added LM chairman, president and CEO Marillyn Hewson.
During a conference call with analysts to discuss LM's fourth quarter results, Hewson noted the strategic importance of the portfolio reshaping the company has undergone since last summer, when it announced its acquisition of Sikorsky Aircraft and its intent to shed its IS&GS businesses.
LM completed its $9 billion purchase of Sikorsky Aircraft, maker of the iconic Black Hawk helicopter, on Nov. 6.
"We are already seeing accelerated customer interest in both military and search and rescue opportunities emerging in the Middle East, Asia, and Eastern Europe," Hewson said.
Falling oil prices have not translated into weakened demand from oil-rich countries, especially in the Middle East, she said. Demand from that region for missile defense programs, munitions and targeting pods remains strong, she said.
"We're not seeing a lot of pullback on expenditures on national security" due to falling oil prices, Hewson said. "While it does put some pressure on budgets in the countries that are buying national security assets and things that they need to protect their citizens, the choices they are making are cutting in other areas."
Hewson said she expects foreign interest in the F-35 joint strike fighter to remain strong in the near future. LM is one pace to deliver 53 F-35s in 2016, up from 45 in 2015, she said. In 2017, the company expects to build about 60 of the aircraft, ramping up to about 100 the following year.
"We really see that the program is getting much more stable as we continue to ramp up," she said.