Lockheed held to weigh large sell-off

$1 billion sale reported to involve core unit of warplane electronics

Firm won't confirm plan

Aim is to regain investor confidence, rejuvenate stock


June 26, 1999|By Sean Somerville | Sean Somerville,SUN STAFF

Lockheed Martin Corp., which is struggling to regain Wall Street's confidence, may seek to shed its military aircraft electronics business as part of a plan to sell at least $1 billion in assets.

The Bethesda aerospace giant would neither confirm nor deny published reports about the sell-off, saying only that executives were expected to make a proposal to the company's board yesterday.

Jim Fetig, a Lockheed spokesman, acknowledged yesterday's scheduled board meeting, and noted that the company is conducting a review of its "operational performance, organizational effectiveness and strategic alignment."

"That review is ongoing. We expect it to take the next several months and we will be announcing the results of that review as they occur. There is a great deal of speculation going on at the moment."

Reports that the company plans to shed $1 billion in assets appeared yesterday in the Wall Street Journal and the Washington Post.

In addition to its military aircraft electronics unit, the company is considering the sale of an information services unit and a business that provides environmental and energy services, the Journal reported.

Lockheed is also seeking a partner for its global telecommunications subsidiary. Another alternative under consideration is a joint venture for military aircraft programs, according to the newspaper.

Lockheed shares, which traded at $64 about a year ago, rose 68.75 cents yesterday to close at $35.875.

"I would say it's a step in the right direction," said Tom Burnett, an analyst who follows Lockheed and is the founder of Merger Insight, a New York stock research service. "They had seemed to lose their focus."

Burnett said top management spent an enormous amount of energy on a losing battle to merge with Northrop Grumman and that it has yet to adjust to post-Cold War realities.

"They need to focus on high-growth areas, get rid of extraneous assets and pay down their debt," Burnett said.

The possibility of Lockheed selling assets surfaced June 9 in a presentation to analysts made by Vance Coffman, the company's chief executive officer. The same day, Lockheed, which has $26 billion in annual sales, said it would post a second- quarter loss and lower-than-expected numbers for 1999 and 2000.

Lockheed, the nation's largest defense contractor, blamed some of its troubles on rising costs, delayed deliveries and slow sales of its C-130J military transport plane; difficulties affecting Titan and Atlas rocket launches; and high costs and low sales in the company's commercial satellite business.

In addition, satellite services provider Comsat Corp. has postponed a shareholder vote on its proposed merger with Lockheed.

Lockheed wants to buy Comsat to expand its new global telecommunications division and proposed a deal valued at $2.7 billion when it was announced in September. However, the value of the deal has fallen by as much as 16 percent with the decline in Lockheed stock.

Because of continuing problems, Lockheed said earnings for 1999 would likely amount to $1.50 per diluted share, instead of the $3.27 that had been widely expected. Year 2000 earnings would be about $2.15 a share, instead of the consensus $3.58.

Paul H. Nisbet, an analyst with JSA Research Inc., yesterday welcomed the possibility of big changes at Lockheed.

"It was a little bit of a surprise that they are considering aircraft electronics to be a noncore business," he said.

"That's a reclassification and one step backward from the vertical integration they were achieving from acquisition. It's an indication that the competition that they're getting from the two largest providers -- Raytheon and Northrop -- is putting a squeeze on their profits."

Nisbet, who has a "hold" rating on Lockheed stock, said the company appears to be shifting its posture about its holdings.

"They're getting out of lower performers even if they were core operations, and they're getting into businesses such as satellite communications that they think will grow," he said. "I can't argue with it. But it's a long-term proposition. It's not something that will turn the company around on a dime."

Burnett, of Merger Insight, said Lockheed's failure to deliver profit has put the credibility of the company's management at stake.

"There is a lot of work to do and they have a lot of credibility to repair," Burnett said. "At least we've stopped heading in the wrong direction."

Wire services contributed to this article.

Pub Date: 6/26/99

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