How the deal was done THE LOCKHEED-MARTIN MARIETTA MERGER

March 12, 1995|By Ted Shelsby | Ted Shelsby,Sun Staff Writer

Norman R. Augustine pushed himself away from the large mahogany desk, which, as always, was uncluttered except for a pen set, clock and family snapshots. He didn't want to be in the office. It was Saturday, and an uncommonly pleasant one for mid-March - 55 degrees and sunny.

But he'd called the emergency meeting, summoning a dozen top lieutenants to his second-floor office in Bethesda. The question: Should Martin Marietta increase its $1.93 billion bid for Grumman Corp.? Two weeks ago, the acquisition had looked assured. Now - on March 19, 1994 - it was jeopardized by Northrop's offer of $2.04 billion.

So Mr. Augustine, the chairman and chief executive officer, leaned back in his chair and asked his associates: Raise or fold?

Consensus came quickly: Fold.

Mr. Augustine was relieved. Martin Marietta had been on a two-year buying binge. Now he could look forward to just running the aerospace giant.

After the meeting ended, he took a deep breath and looked out the window, idly watching ducks paddle across the man-made lake that separates Martin Marietta's corporate headquarters from Loral's Federal Systems complex.

He looked at his watch. Five o'clock. Nearly everyone had gone )) home to prepare for the company's management retreat the next day in Arizona. As he considered doing the same, his phone rang.

The caller was an old friend and competitor from across the country: Daniel M. Tellep, Mr. Augustine's counterpart at Lockheed Corp. in California.

That call set in motion a remarkable series of events that will culminate Wednesday in Chicago. A year after the first %o exploratory phone call, shareholders are expected to approve a merger that will create Lockheed Martin Corp. It's the largest merger in the history of the American defense industry and it will create the country's 16th-largest industrial corporation.

Interviews with Mr. Augustine, Mr. Tellep and other principals, and an examination of documents filed with the Securities and Exchange Commission, yield a detailed picture of how such a mammoth merger was made in secret - and kept that way until mere hours before a formal announcement.

It's a tale of clandestine meetings around the country, code names and subterfuges. And there were misadventures and mishaps - even forgotten code names - all along the way.

The California call

While Mr. Augustine met with his top lieutenants in suburban Maryland, Mr. Tellep was doing the same a continent away, in California's high desert.

That Saturday, Mr. Tellep and his associates were reviewing a long list of companies Lockheed might buy as it struggled to survive the worst defense-industry shakeout in half a century.

In a sprawling conference room in Calabasas, they studied 20 large, three-ring, highly confidential binders. Each one contained detailed financial analysis of a competitor - including the price Lockheed was willing to pay to acquire it.

One by one, they examined the binders. They considered Grumman, but the price was too high. Then Federal Systems Co., but that had recently been acquired by Loral Corp., so it was scratched from the list. They desperately wanted a space company, but prices were exorbitant.

After four hours, they had gotten nowhere.

" Did we miss something?" Mr. Tellep prodded. " Is there some possibility that we have overlooked?"

There was one.

It was crazy. So off-the-wall that the company wasn't even among the 20 they'd been discussing.

After the meeting, Mr. Tellep wanted to talk - privately - with Vincent N. Marafino.

The two men are close, and Mr. Tellep often seeks the counsel of Lockheed's 64-year-old vice chairman and chief financial officer.

Mr. Marafino cautioned that there would be huge problems with the idea. But on balance he thought it should be pursued.

" Should I call today, or think about it over the weekend?" Mr.

Tellep asked.

" Call now."

So Mr. Tellep walked to his office and picked up the phone.

" Norm, we've been noodling and thinking about acquisitions and things. Now, here's an idea that sounds off the wall, and I don't want to interfere with any plans you have for Grumman. But would you have any interest in putting Lockheed and Martin Marietta together? A merger of equals?"

He didn't wait for a response, just plowed on with the pluses.

" If you look at it, it's really unique, Norm. Your market capitalization is about the same as ours. We have about the same sales - not perfect, but in the same ballpark. We know you, and you know us."

It was true. The two companies had worked together in a failed joint effort to acquire LTV Corp.'s missile and aerospace division a year earlier and the two men knew and respected one another.

" Would you be interested in sitting down and talking about this?"

" I sure would," Mr. Augustine replied. " I sure would."

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