8 Lockheed firms for sale in shake-up

$1 billion-plus deal is aimed at regaining investor confidence

Shares rise $1.5625

A Maryland company with 50 workers is among those on block

Aerospace

September 28, 1999|By Robert Little | Robert Little,SUN STAFF

Lockheed Martin Corp. of Bethesda announced yesterday that it will sell eight subsidiary businesses worth more than $1 billion, part of a streamlining designed to restore customer and investor confidence in the nation's largest defense company.

The aerospace giant also will shuffle its top management and reorganize operations, a plan likely to include layoffs for a handful of Lockheed Martin's 160,000 employees, company officials said. Details of the layoffs will not be known for several months, they said.

The announcement comes as a spate of production delays and performance problems have siphoned off the company's profit, prompting a $41 million second-quarter loss and leading the company to predict earnings for the year of about $1.50 a share, down from $2.63 a share last year.

Lockheed Martin's stock value has plunged along with its earnings, falling 28 percent this year. Investors seemed pleased with yesterday's announcement: Lockheed Martin shares rose $1.5625 to close at $32.1875 on the New York Stock Exchange.

Analysts said the aerospace company still has a way to go to restore investor confidence, but shareholders want

Chairman Vance Coffman to send a bold message that the company is rebounding from the delayed aircraft deliveries and a series of rocket failures that have reduced profit this year.

Company officials said the proposed sales will not change their earnings predictions for this year or next.

"I'm afraid that they've so lost credibility with investors that they had to do something," said Paul H. Nisbet, an analyst for JSA Research Inc.

"What will be required to restore that credibility is an improvement in their earnings performance. Until then, we're just hearing a lot of happy words," he added.

Changes in the company have been anticipated since June, when corporate officials announced that a management review was under way. A Lockheed Martin spokesman said yesterday that the reorganization will allow the company to shed secondary businesses and focus on correcting operational problems.

Lockheed Martin's income has suffered from construction delays and cost overruns in its C-130J cargo plane program, and a reduction in the number of launches for its Atlas rocket. Launch failures of Lockheed Martin rockets last year and early this year destroyed or crippled $2 billion in military and private satellites.

"We've been listening to our customers and they are telling us that we're not living up to the level of service they expect," said Lockheed spokesman James Fetig. "The number one objective of this restructuring is to improve our service to our customers." The eight businesses for sale employ about 9,000 people and account for about $1.4 billion of the company's $26 billion in annual revenue. Lockheed said it expects the businesses to fetch more than $1 billion, and that the proceeds would be used to pay down debt.

The largest of the businesses for sale is the Sanders unit in Nashua, N.H., which designs military electronics and employs about 4,700 workers. One of the businesses is Energy Technologies, a Bethesda company that conducts environmental studies and employs about 50 people.

Other companies targeted for sale include Infrared Imaging Systems in Lexington, Mass.; Fairchild Systems in Syosset and Yonkers, N.Y.; Control Systems in Johnson City, N.Y., and Fort Wayne, Ind.; Hanford Corp. of Richland, Wash.; and Retech of Ukiah, Calif.

As the businesses are sold, the company will lay off administrative employees who will no longer be needed, Fetig said.

The sale is exactly what Lockheed Martin needs to begin correcting a "fundamental mistake" in the series of mergers that created the company over the past four years, said Stuart McCutchan, who publishes the Defense Mergers & Acquisitions newsletter.

The mistake, he said, was combining a Lockheed that made platforms such as airplanes, rockets and satellites with a Martin Marietta that made electronics to put on the platforms. The resulting company, McCutchan said, is spread across too many business areas -- it can manufacture every stage of a big program, from components to the finished product.

Rival Boeing Co., by contrast, makes just the platforms and hires subcontractors to supply everything else. That setup is more efficient, McCutchan said, because it allows Boeing to master its specialties. Earlier this month, Boeing beat out Lockheed Martin for a $4.5 billion government spy satellite contract.

Lockheed Martin would draw closer to Boeing's model by purging some of its smaller businesses, McCutchan said.

Lockheed Martin also announced several staffing changes, including a new chief financial officer. Robert J. Stevens will replace Philip J. Duke, who is leaving the post after less than a year.

The company plans to reorganize into four divisions -- aeronautical systems, space systems, systems integration and technology services. The systems integration division, comprising businesses with $9 billion in sales last year, will be led by Robert B. Coutts, a former head of the Martin Marietta production plant in Middle River.

Sun staff writer Greg Schneider contributed to this article.

Pub Date: 9/28/99

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