Comsat purchase seems in jeopardy

Lockheed shares dip, causing deal to lose 16 percent of its value

`Having second thoughts'

Comsat reschedules shareholder vote, reviews transaction

June 12, 1999|By Mark Ribbing | Mark Ribbing,SUN STAFF

Lockheed Martin Corp.'s financial woes are stoking suspicions that the defense giant's proposed acquisition of satellite communications company and Bethesda neighbor Comsat Corp. may be in trouble.

Lockheed Martin planned to pay most of the transaction -- initially valued at $2.7 billion -- with its own stock.

The value of that currency is declining: Adjusted for a 2-for-1 split, Lockheed Martin shares are worth 28.4 percent less than they were when the deal was announced Sept. 20.

The European edition of the Wall Street Journal reported yesterday that Comsat Vice President and General Counsel Warren Y. Zeger said some Comsat shareholders have expressed concern because the recent decline in Lockheed Martin's share price has reduced the value of the transaction by 16 percent, and Comsat has "all aspects of this matter under review."

Yesterday, Comsat said its board of directors had voted to reschedule the meeting at which shareholders would vote on the Lockheed Martin deal. The meeting, which had been scheduled for June 18, now is set for Aug. 20.

In a statement accompanying the rescheduling announcement, Comsat President and Chief Executive Officer Betty C. Alewine said her company will "pursue aggressively" the regulatory and legislative approvals needed to complete the acquisition.

"Rescheduling the shareholder meeting will put the meeting date closer to the anticipated receipt of these requisite approvals," Alewine said.

Comsat officials declined to comment further on the delay, Zeger's remarks or the status of the proposed acquisition.

Lockheed Martin spokesman Charles P. Manor III said, "Nothing has changed. The transaction still has the complete backing of Lockheed Martin's management and board of directors."

Analysts said the postponement of the shareholder vote comes as the deal is being re-examined.

"I think that the reason [Comsat] has postponed its shareholder meeting was that they wanted to see what would happen to the stock," said Paul H. Nisbet of JSA Research Inc. in Newport, R.I. "Because Lockheed stock has depreciated so much, Comsat is having second thoughts about that part of the deal."

Nisbet said "there's a fair chance" the deal will be scrapped, and Comsat shareholders are not the only ones who might welcome such an outcome. Lockheed Martin shareholders, he said, could also have something to gain: "It would mean Lockheed would not be burdened with that huge investment when it's already weak financially."

Thursday's successful test of Lockheed Martin's Theater High-Altitude Area Defense (THAAD) missile system was a rare burst of good news for a company that had announced that it would post a second-quarter loss and poor financial numbers for the rest of this year and next year. Beset by high costs, slow sales and mechanical problems, the company has fired executives and announced broad job cuts.

Tom Burnett of Merger Insight in New York said Lockheed Martin and Comsat seem stalled in their attempt to navigate an arduous regulatory process. Comsat was created by an act of Congress in 1962, so Lockheed Martin must persuade Congress to amend the law to obtain full control of the satellite communications company. In addition, the Federal Communications Commission and the Department of Justice must sign off on the deal.

"Right now we're just kind of in a holding pattern," Burnett said. "They're not making a whole lot of progress on the regulatory side."

Bloomberg News contributed to this article.

Pub Date: 6/12/99

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