Lockheed to separate IT services business; reports 4Q earnings

BETHESDA, Md. – Lockheed Martin has agreed to separate its Information Systems and Global Solutions division and combine it with Leidos Holdings in a $5 billion deal, the Bethesda-based company announced Tuesday.

The long-anticipated transaction comes as Lockheed, the nation’s biggest defense contractor, is focusing more on building hardware, such as the F-35 Joint Strike Fighter, and moving away from government services. Last year, for instance, Lockheed acquired Sikorsky, the helicopter manufacturer.

The latest deal includes a $1.8 billion payment to Lockheed, which would use the cash to repay debt, pay dividends and possibly repurchase stock.

“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,” Marillyn Hewson, Lockheed’s chairman, president and chief executive, said in a statement.

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Lockheed shareholders would receive 50.5 percent of the venture, with Leidos owning the balance.Leidos management team would run the combined company and Lockheed would receive three seats on the board.

“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,” said Roger Krone, chairman and CEO of Reston-based Leidos.

The deal, which is subject to regulatory approvals, is slated to close in the second half of this year.

Lockheed also reported that its net sales from the fourth quarter last year were $12.9 billion, compared with $12.5 billion during the fourth quarter of 2014. Net earnings from the quarter that just ended were $933 million, or $3.01 a share, up from $904 million, or $2.82 a share, in the fourth quarter of 2014.

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In a call with analysts, Hewson said that the company exceeded all of its full-year goals, and was helped by the fact that Congress finally reached a budget deal, increasing funding for national security.

She said the company has a record order backlog that totals nearly $100 billion, including $15.6 billion for Sikorsky, which makes the Black Hawk helicopter and is currently under contract to build the next fleet of presidential helicopters.

The $400 billion F-35 Joint Strike Fighter program, beset for years by cost overruns and delays, has stabilized, as production has ramped up, she said. In 2015, Lockheed delivered its goal of 45 aircraft to the Pentagon and international customers, the company said. In 2016, it plans to deliver 53, with 59 by 2017 and up to about 100 by 2018.

But the program still has its critics, including Sen. John McCain, R-Arizona, who has said that because of budget pressures, the Pentagon likely won’t be able to buy the expected 2,443 planes for the Air Force, Navy and Marine Corps.

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“The number they are now quoting-there’s just not going to be that many,” he said late last year.