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Roger Krone: SETA Service Contracts Minimal in Leidos-Lockheed IS&GS Combination

Roger Krone
Roger Krone

The merger of Leidos Holdings (NYSE: LDOS) with Lockheed Martin‘s (NYSE: LMT) information systems and global solutions business involves “one or two” contracts for systems engineering and technical assistance service work that has largely been spun out of the latter company, Leidos CEO Roger Krone told investors Tuesday.

Krone said Lockheed shifted a majority of its SETA contracts into the contractor formerly known as The SI Organization in 2010 that subsequently rebranded as Vencore in July 2014.

Reston, Virginia-based contractor Leidos separated its former information technology and SETA business into the McLean, Virginia-headquartered company now known as Science Applications International Corp. in September 2013 when both businesses split from the entity then named SAIC.

“Where Lockheed had positioned IS&GS marries in with the philosophy that we have at Leidos that was promulgated at the time of the split where we spun out (SAIC) which contained our SETA business, ” Krone said in the call to discuss Leidos’ first quarter financial results.

“Everything seems to be on track. We’ve heard nothing that would cause us to think we’re not going to be able to close near the end of the summer, ” he added.

The combined Leidos-Lockheed IS&GS business will have nearly $19.4 billion in backlog upon closure along with the $10.7 billion in projected pro forma revenue detailed in registration statements to the Securities and Exchange Commission, according to Krone.

Leidos reported earnings and revenue above the consensus analyst estimate and held to its full-year guidance in both measures.

As of 12:o0 p.m. Eastern, shares in Leidos were down 3.12 percent in intraday trade.

Krone, an inductee into Executive Mosaic’s Wash100 for 2016, also announced to investors the formation of a new office to help oversee integration efforts in support of the merger for systems, financial and human resources functions.

Michael Leiter,  former executive vice president of strategy business development, will head the integration management office that will comprise of leaders from both Leidos and Lockheed, as well as post-merger management support personnel from global management consulting firm McKinsey.

“(Post-closing),  essentially we will collapse the IMO and the IS&GS leadership team into the Leidos leadership team.  And we will operate post-closing as one entity, ” Krone told investors.

Additionally, Leidos made a series of executive appointments in the first quarter that included former Senior VP John Fratamico to group president of surveillance and reconnaissance Mary Craft, former deputy head of surveillance and reconnaissance, as president of the global services group.

Both part of the national security segment, the surveillance and reconnaissance group focuses on intelligence collection and processing systems with the global services group in fields such as geospatial intelligence and mission support.

Tom Dove, former deputy group manager of the global services group, will move into the business development and strategy EVP role formerly held by Leiter.

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