“This strategic transaction is an important milestone in the portfolio-reshaping strategy we announced in July 2015 and allows us to focus on our core business in aerospace and defense,” said Lockheed Martin Chairman, President and CEO Marillyn Hewson. “The combination of our proven IT and technical services businesses with Leidos will create a new leader in the government IT sector with a diversified portfolio, greater scale and improved efficiency.”
The agreement aligns IS&GS’s business with an industry leader in government IT and technical services, creating an enterprise capable of providing unparalleled solutions in industries from national security to health and life sciences. IS&GS’s world-class expertise, reputation and global reach will enable Leidos to offer a broader portfolio of mission-critical IT solutions and services to support customers across the globe.
“The combination of IS&GS with Leidos creates truly significant value for our shareholders, and brings together a $10 billion portfolio of solutions, mission IT, and technical services,” said Roger Krone, Leidos chairman and CEO. “The combined company will be a more diversified leader in the markets we serve, giving us the scale and access to markets that enable further growth. The new company will be better able to offer cost-effective solutions to our customers. I look forward to welcoming the talented employees from IS&GS who will join the Leidos team — they will play a critical role in our future success.”
Subject to regulatory approvals, the $5 billion transaction includes a $1.8 billion one-time special cash payment to Lockheed Martin, which the Corporation intends to use to repay debt, pay dividends, and/or repurchase its stock. The cash payment is subject to adjustment on the terms set forth in the transaction documents. Lockheed Martin stockholders will receive approximately 50.5 percent (approximately 77 million shares) of the outstanding equity of Leidos on a fully diluted basis with an estimated value of $3.2 billion. Leidos’ existing shareholders will continue to hold the remaining approximately 49.5 percent of the outstanding shares of Leidos.
The transaction structure, which is subject to market conditions, is currently contemplated to be a tax-efficient split-off transaction, which would result in a decrease in Lockheed Martin share count. The transaction is also subject to Leidos shareholder approval and completion of customary conditions, including receipt of opinions of tax counsel. The transaction is expected to close in the third or fourth quarter of 2016. Until closing, IS&GS will continue to operate as a business segment of the Corporation.