Lockheed to Explore IT Business Separation, Inks $9B Deal for Helicopter Maker Sikorsky

acquisitionLockheed Martin (NYSE: LMT) will examine a potential separation of its government information technology and technical services business components and has agreed to purchase helicopter manufacturing business Sikorsky Aircraft from United Technologies Corp. for approximately $9 billion.

Lockheed announced both moves Monday and said its IT business segment review will look at whether to spin off or sell parts of its information systems and global solutions business segment, as well as the technical services portion of the company’s missiles and fire control segment.

Investor slides on the company’s website list the air traffic management, technical services, government and enterprise IT, commercial cybersecurity and government health IT as parts of the IS&GS segment subject to review.

The company will not subject IS&GS programs mostly focused on defense and intelligence agencies to that review and will realign those pieces into its other four business segments after the review.

Mission IT and services work will shift to the mission systems and training segment, energy solutions to missiles and fire control and space/space services to the space segment, according to the slides.

Programs under the review represent close to $6 billion in fiscal year 2015 revenue and more than 17, 000 employees, Lockheed said.

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Lockheed and UTC expect to close the Sikorsky transaction in either the fourth quarter of Lockheed’s 2015 fiscal year or first quarter of its 2016 fiscal year and UTC said it will use the sale proceeds to fund additional share repurchases to offset earnings impacts related to the transaction.

Lockheed will fund the deal through available cash and new debt issuances and Sikorsky will join the company’s mission systems and training business segment upon the transaction’s closure.

Sikorsky generated close to $8 billion in fiscal 2014 revenue for UTC, which announced its intention to sell the subsidiary in June after a strategic review.

UTC and Lockheed will carry out the transaction as an asset purchase for tax purposes and Lockheed anticipates a tax benefit of $1.9 billion from the deal.

Sikorsky and Lockheed are partners in programs such as the VH-92 presidential helicopter, Combat Rescue Helicopter and the MH-60 helicopter.

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