In the world of contracting for the U.S. Department of Defense, Lockheed Martin Corp. (NYSE: LMT) and Sikorsky Aircraft Corp. are no strangers. The chief executive of Bethesda, Maryland–based Lockheed noted the two companies have a 40-year history of collaborating on programs. And, Sikorsky has served as a “frequent teammate” for Lockheed’s mission systems […]
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In the world of contracting for the U.S. Department of Defense, Lockheed Martin Corp. (NYSE: LMT) and Sikorsky Aircraft Corp. are no strangers.
The chief executive of Bethesda, Maryland–based Lockheed noted the two companies have a 40-year history of collaborating on programs. And, Sikorsky has served as a “frequent teammate” for Lockheed’s mission systems and training business area.
For example, the U.S. Navy in early May 2014 awarded a $1.26 billion contract to Sikorsky Aircraft and Lockheed Martin to build a new fleet of Marine One helicopters that are used to transport the U.S. President.
Marillyn Hewson, chairman, president, and CEO of Lockheed Martin, made her comment during a July 20 webcast announcing the pending acquisition and the company’s second-quarter earnings.
The defense contractor has agreed to acquire Sikorsky for $9 billion.
That price is “effectively reduced” to about $7.1 billion after taking into account tax benefits resulting from the transaction, the defense contractor said in a news release issued that same morning.
Sikorsky, which specializes in the design, manufacture, and service of military and commercial helicopters, is a subsidiary of United Technologies Corp. (NYSE: UTX), the parent company of Carrier Corp., which has operations in DeWitt.
Sikorsky is a “natural fit” for Lockheed Martin, Hewson contends.
“It complements our broad portfolio of world-class aerospace and defense products and technology. This action will enable us to extend our core business into the $30 billion annual military and commercial rotary-wing segment,” Hewson said in her remarks.
She noted that Sikorsky has familiar customers, referring to it as among “the important strategic benefits of this acquisition.”
“This familiarity will assist the integration process through utilization of similar knowledge and interaction with common customers. They’re also extraordinarily well positioned with an established brand and a robust backlog of future work,” said Hewson.
In addition, Lockheed also expects Sikorsky’s “strong” after-market business to provide a “long-term” source of earnings for the corporation, Hewson added in her webcast remarks.
The acquisition is subject to customary conditions, including securing regulatory approvals. Lockheed expects the acquisition will close by the end of the year or early in the first quarter of 2016.
The transaction will have “no impact” on the company’s previously stated “commitments” to return cash to shareholders through dividends and to reduce its outstanding share count to below 300 million shares by the end of 2017, the company said.
Aligning Sikorsky
Lockheed Martin plans to align Stratford, Connecticut–based Sikorsky under its mission systems and training (MST) business segment.
The MST unit has operations in both Salina in Onondaga County and Owego in Tioga County.
Lockheed and Sikorsky currently partner on a “number” of programs, including the VH-92 Presidential helicopter, combat-rescue helicopter, and the naval MH-60 helicopter, Lockheed said.
Sikorsky has 15,000 employees and operates in 20 countries with products used in more than 40 countries, according to a Lockheed Martin online slide presentation.
Lockheed Martin employs about 112,000 people worldwide, including a combined 4,200 people between its plants in Salina and Owego. The corporation’s net sales for 2014 were $45.6 billion, according to its news release on the Sikorsky acquisition.
Sikorsky expects to generate revenue of $6.5 billion in 2015 with its revenue composition split equally between domestic and international customers.
“With approximately 50 percent of [its] annual revenue derived from international customers, [Sikorsky] will aid us in moving forward on our goal to expand international revenues,” Hewson said in her webcast remarks.
About 75 percent of its customers are from the military and 25 percent come from the commercial sector, according to the Lockheed slide presentation.
Earnings, review announcement
Lockheed Martin made its announcements as the firm shared its second-quarter financial results.
The defense contractor reported net earnings of $929 million, or $2.94 a share, during the second quarter on net sales of $11.6 million, Lockheed said in a separate news release issued July 20.
Besides the Sikorsky acquisition, Lockheed Martin announced it will conduct a “strategic” review of alternatives for its government information-technology and technical-services businesses.
The review will focus “primarily” on the information systems and global solutions business segment and a portion of the missiles and fire-control unit.
“The strategic review will address the changing market dynamics affecting these businesses and will help us determine how to best position them for future growth and is expected to result in the spinoff or sale of the businesses,” said Hewson.
The programs represent roughly $6 billion in estimated 2015 annual sales and more than 17,000 employees, the firm said.
