Lockheed selling unit to British giant

BAE is purchaser of aerospace electronics business

$1.67 billion deal

Bethesda-based defense contractor to pay down debt


July 14, 2000|By Robert Little | Robert Little,SUN STAFF

Lockheed Martin Corp. announced yesterday that it will sell its aerospace electronics business to British defense firm BAE Systems for $1.67 billion, a move designed to pare the Bethesda-based company's debt and allow it to focus more on its core businesses of building airplanes, rockets, satellites and weapon systems.

The all-cash sale will yield Lockheed Martin about $1.3 billion after taxes and other transaction costs.

The proceeds will be used to pay down the nearly $12 billion in debt the corporation acquired from a spate of acquisitions in recent years.

The deal also will make BAE Systems, based in Farnborough, England, the top foreign defense contractor in the United States.

BAE Systems was formed late last year through a merger of British Aerospace and Marconi Electronic Systems.

The sale still needs regulatory approval, but is expected to be complete by the end of the year.

Lockheed Martin had put its electronics businesses and several other operations up for sale in September as part of a broad corporate restructuring plan designed to restore investor confidence.

Troubled by a series of costly equipment failures and production delays, Lockheed had seen its stock plunge and investors begin to question whether the company had grown too large.

In announcing the sale, Lockheed Martin Chairman and Chief Executive Officer Vance D. Coffman said, "The proposed transaction advances our strategic initiatives to refocus the corporation."

While not surprised by the news, analysts seemed to agree.

"Through the years, Lockheed Martin has grown through acquisitions that left it with a lot of extra baggage - things it never really seemed to want," said Peter S. Jacobs, an analyst for the Seattle-based brokerage Ragen MacKenzie.

"This gets them more focused and going in the right direction."

The sale includes three electronics manufacturing operations - in New Hampshire, New York and Virginia - that employ about 5,300 people and had revenue last year of $1.2 billion.

The largest component is the Sanders unit in Nashua, N.H., which employs more than 4,000 people and is the Pentagon's top supplier of electronic warfare equipment to protect pilots.

The units also build tactical surveillance and intelligence systems, electronic reconnaissance and navigation systems, and infrared sensors.

The sale amounts to only a fraction of the Lockheed Martin defense conglomerate, which had $25 billion in revenue last year and ranked as the nation's largest defense contractor.

However, by shedding the divisions, Lockheed Martin officials have said, they can better focus on the company's core businesses - designing and building complex systems and weapons.

Lockheed Martin is competing with Boeing Co. to design the Pentagon's new Joint Strike Fighter, which could become the largest defense aircraft acquisition in history. And it is developing the weapons system for the next generation of nuclear aircraft carriers.

BAE Systems, whose North American division is based in Rockville, is a partner with Lockheed Martin on the Joint Strike Fighter project.

The company employs about 18,300 people in the United States and Canada.

British Aerospace designed the AV-8 Harrier jet, which can land vertically and is flown extensively by the U.S. Marine Corps and the British Royal Navy.

Lockheed Martin and BAE Systems said they will seek review of the sale by the Treasury Department's Committee on Foreign Investments in the United States.

Coffman said he is confident that the sale "supports U.S. Department of Defense objectives and trans-Atlantic cooperation."

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