Military Embedded Systems

Merger process of Leidos and Lockheed Martin's Information Systems & Global Solutions begins


January 26, 2016

Mariana Iriarte

Technology Editor

Military Embedded Systems

RESTON, Va. In a Reverse Morris Trust transaction, Leidos and Lockheed Martin’s realigned Information Systems & Global Solutions business (IS&GS) will merge into one company.

Lockheed Martin shareholders will receive approximately 50.5 percent of the combined company on a fully diluted basis. The transaction is valued at an estimated $5 billion based on Leidos’ $55.22, five-day volume weighted average stock price. Lockheed Martin also receives a special cash payment of $1.8 billion.

Upon closing, Leidos will have approximately 152.4 million common shares and common share equivalents outstanding. The transaction, other than the special dividend to Leidos shareholders, is expected to be tax-free for both companies' shareholders.

Leidos will also pay a special dividend estimating in $1 billion to its shareholders, contingent on closing the transaction. The dividend will fund through new borrowing by Leidos and cash on hand.

The transaction is anticipated to close in the second half of 2016. Completion of the transaction is subject to customary closing conditions, including regulatory and Leidos shareholder approvals and receipt of opinions of tax counsel.

Leido’s chairman and CEO, Roger Krone, will continue with his duties and Jim Reagan will also continue to serve as CFO. Pursuant to the transaction agreement, Lockheed Martin will be entitled to designate three new directors to serve on the Leidos board of directors.

Officials say the businesses will continue to operate separately until the transaction closes and its headquarters will remain in Reston, Va.

Citigroup is acting as exclusive financial advisor to Leidos. Citigroup, Bank of Tokyo Mitsubishi UFJ, Bank of America, JP Morgan and Goldman Sachs are providing committed financing for the transaction. Skadden, Arps, Slate, Meagher & Flom LLP and Fried, Frank, Harris, Shriver & Jacobson LLP are acting as legal advisors to Lidos.

The merger will add IT system implementation and operation experience to Leidos portfolio, providing venues to sell services such as cybersecurity and analytics, officials say.

The merger brings a $10 billion portfolio of solutions, mission IT, and technical services, says Roger Krone, Leidos chairman and CEO.

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