Lockheed Martin strikes $5-bn IT merger deal with Leidos Holdings

Lockheed Martin Corp, the largest US defence contractor, yesterday struck a $5-billion deal to merge its government IT business with Leidos Holdings Inc.

The deal comes five months after Lockheed Martin acquired Sikorsky Aircraft from United Technologies Corp for $9 billion (See: Lockheed Martin acquiring Sikorsky Aircraft from UTC for $9 bn).

Lockheed Martin will carve out its government information-technology unit and focus on its core and profitable aerospace and defense business.

Under the financial terms of the deal, Lockheed Martin shareholders will receive 77 million or 50.5 per cent of the enlarged Leidos shares with an estimated value of $3.2 billion, and $1.8 billion in cash.

Lockheed Martin intends to use the money to repay debt, pay dividends, and / or repurchase its stock, while Virginia-based Leidos expects to pay its shareholders a special dividend of about $1 billion.

''This strategic transaction is an important milestone in the portfolio reshaping strategy we announced in July 2015 and allows us to focus on our core business in aerospace and defense,'' said Lockheed Martin chairman, president and CEO Marillyn Hewson.

''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,'' she said.

Lockheed Martin IT business generates annual sales of around $5 billion and employs more than 16,000 people globally.

The deal will make Leidos the largest government services IT provider with combined revenue of over $10 billion

With forecast sales of $49.5 billion to $51 billion for 2016, Bethesda, Maryland-based Lockheed Martin is a global security and aerospace company employing around 115,000 people worldwide.

Leidos is a science and technology solutions focusing on security, health and engineering.

The company employs 19,000 people and reported annual revenues of approximately $5.06 billion for its fiscal year ended 30 January 2015.