US aerospace contractor Lockheed Martin has split off its Information Systems & Global Solutions (IS&GS) business and combined it with engineering firm Leidos in a tax efficient transaction allowing it to focus on its core business in aerospace and defence.
US aerospace contractor Lockheed Martin (NYSE:LMT) has split off its Information Systems & Global Solutions (IS&GS) business and combined it with engineering firm Leidos (NYSE:LDOS), following a strategic review.
Lockheed CEO Marillyn Hewson (pictured) said the deal enables the group to focus on its core aerospace and defence business, while unlocking US$5bn in value for shareholders.
“This strategic transaction is an important milestone in the portfolio reshaping strategy we announced in July 2015,” Hewson said.
Lockheed has been reorganising itself for a number of years, and in 2015 it consolidated its satellite business into one facility in Denver.
JP Morgan and Goldman Sachs advised Lockheed on the Leidos deal, which is structured as a Reverse Morris Trust transaction – a process that combines a spin-off with a merger to allow a tax-free transfer of a subsidiary under United States law.
Under the terms of the agreement, IS&GS will be separated from Lockheed and combined with Leidos, with Lockheed shareholders receiving 50.5% of the merged group’s stock. Lockheed will also receive a one-off payment of US$1.8bn from Leidos that it may use to repay debt, pay a dividend or repurchase stock. The structure of the deal will see Lockheed’s share count decrease when IS&GS is split off.
Leidos shareholders will own the remaining 49.5% of the combined group and Leidos – advised by Citigroup – said it will pay a special US$1bn dividend to its shareholders, providing the deal completes. Closing is expected in the second half of this year depending on when approvals are received.
Bank of Tokyo Mitsubishi UFJ, BofA Merrill Lynch, JP Morgan, Goldman Sachs and Citigroup are providing Leidos with an unspecified amount of committed financing for the transaction. Skadden, Arps, Slate, Meagher & Flom and Fried, Frank, Harris, Shriver & Jacobson are legal advisers to Leidos.
Lockheed’s M&A counsel was Hogan Lovells, and Davis Polk acted as tax counsel.
Roger Krone will continue as chairman and CEO of Leidos and Jim Reagan will remain as CFO, but Lockheed will be entitled to designate three new directors to serve on the Leidos board of directors.
Click here for SatelliteFinance’s exclusive interview in November with Carl Marchetto, Lockheed’s head of commercial space.
