Lockheed Martin Unlocks $5 Billion By Combining Information Systems Segment With Leidos

Lockheed Martin is unlocking $5 billion in value by entering into an agreement to separate the Information Systems & Global Solutions (IS&GS) segment and combine it with Leidos Holdings to concentrate on Aerospace and Defense business.

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 per cent (approximately 77 million shares) of the outstanding equity of Leidos on a fully diluted basis with an estimated value of $3.2 billion, the company said in a statement Tuesday.

"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 new business will be positioned for growth while unlocking value for our stockholders," Marillyn said.

The agreement aligns IS&GS's business in government IT and technical services, creating an enterprise capable of providing solutions in industries from national security to health and life sciences. The complementary portfolios of both companies will enable synergies, creating additional value for stockholders.

Leidos' existing shareholders will continue to hold the remaining approximately 49.5 per cent 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.