Lockheed Martin Corp. may be merging two of their smaller information technology companies, according to a report from Reuters on October 2. The value of the merger with a government services contractor stands at an estimated $4 billion, said sources close to the issue.
The information technology business is multifaceted, branching into network administration, design, telecommunications, computer support, computer science, software programming and system analyses. This particular deal would create the largest single government services contractor in the nation, with Lockheed receiving about $2 billion.
Lockheed is currently the largest supplier to the Pentagon, and they are looking to pay down debt after a July deal where they acquired Sikorsky Aircraft. The aircraft company is the helicopter unit of the United Technologies Corp., and the deal cost Lockheed $9 billion cash.
The businesses involved in the predicted merger are CACI International Inc. and Science Applications International Corp., who are currently discussing a “Reverse Morris Trust (RMT) deal” for assets. The transaction would allow them to avoid a huge tax bill, according to insiders.
There is also evidence of Lockheed contacting other businesses to inquire about interest in the potential deal. Those companies included Booz Allen Hamilton Holding Corp. and Leidos Holdings Inc.
Back on July 20, Lockheed announced that it would be carrying out a strategic review of their businesses within two divisions. They said that the total predicted revenue was $6 billion for 2015, and their main goal was to spin off the units or sell to outside investors. Sources say they are not certain that the RMT deal would be chosen and did not want to be identified. All of the companies involved in the potential deal declined comment when contacted by Reuters.
Most of the programs that are being “strategically reviewed” by Lockheed are in their information technology units, though there are also a few from missiles and fire-control departments being reviewed.
It isn’t clear how this will affect the overall industry and market for these industries. Many speculate that stocks could be affected, while others point to the 17,000 employees in these projects. These are projects that have already been affected negatively by reduced government spending, increased competition, and delays in new contracts.
In terms of their information technology units, Lockheed says they expect that sales will decline in the rest of 2015, and they plan to cut 500 jobs already by mid-November.