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Lockheed Eyes Further Share Count Cut Via Leidos Transaction, to Use Cash Dividend for Stock Buyback

lockheed martinLockheed Martin (NYSE: LMT) envisions further reductions in its outstanding share count after the merger of its information systems and global solutions business into Leidos Holdings (NYSE: LDOS) completes on its scheduled closure date of Aug. 16, Lockheed Chief Financial Officer Bruce Tanner told investors Tuesday.

Tanner’s comment to analysts in the company’s second quarter earnings call came approximately one week after Lockheed announced an exchange offer for its shareholders to acquire shares in Leidos once the combination of the IS&GS segment and Leidos announced Jan. 26 completes.

Lockheed shareholders will hold 77 million out of 152.4 million shares in Leidos to represent 50.5 percent of the stock, plus receive a $1.8 billion cash dividend from Leidos to fulfill obligations that structure the deal as a Reverse Morris Trust.

“Lacking a more pressing or opportunistic use, a good chunk of that (dividend) will go toward share repurchases, ” Tanner said in the call.

Since the merger’s Jan. 26 announcement, shares in Lockheed have risen 22.04 percent while Leidos’ stock has dropped 9.78 percent as of 3 p.m. Eastern time Tuesday.

Tanner told investors both share price changes over six months are “working against” Lockheed’s goal to make the exchange offer and related share repurchases earnings neutral but the dividend will help get the company close to it.

Bethesda, Maryland-based defense contractor Lockheed expects the exchange offer to reduce its share count by at least 10 million upon completion of the Leidos deal and aims to have less than 300 million outstanding shares by 2017 compared to the current 304 million.

The company has allocated close to $6.8 billion for stock repurchases over three years.

Under that exchange offer, Lockheed shareholders can turn in every $100 they own in that company’s stock for approximately $111 in Leidos stock at a ceiling of 8.2136 shares in Leidos until 8 a.m. Eastern time on Aug. 16 unless Lockheed extends the deadline.

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