Lockheed Martin Acquires Loral
Two of the most aggressive dealmakers in the buyout frenzy sweeping the defense industry are combining.
Lockheed Martin Corp., the country’s largest and most diverse military contractor, will buy most of Loral Corp., a leading maker of defense and aerospace electronics and computer systems, for about $9.4 billion. The transaction was announced Monday.
Both companies have made numerous acquisitions in recent years in an effort to diversify, cut costs and stay competitive during an era of fast-shrinking defense budgets brought about by the end of the Cold War.
This deal, if accepted by Loral shareholders and antitrust regulators, would strengthen existing Lockheed businesses that the company admits are weaker than some competitors.
“We have been growing and efficiency and good technology are the keys to that and this particular transaction really brings us both of those things,” said one of the deal’s architects, Lockheed Martin president and chief executive Norman Augustine.
Bethesda, Md.-based Lockheed Martin is itself the product of a 1994 merger between Lockheed and Martin Marietta Corp. It plans to pay $7 billion in cash for all of Loral except for its satellite communications business. In addition, Lockheed will assume $2.1 billion in Loral debt.
The satellite business would be separated into a new company, named Loral Space and Communications Corp. Lockheed would buy 20 percent for $344 million. Loral shareholders would get one share of Loral Space for every share they now own.
The deal puts a per-share value on Loral of $45.50, a healthy 26 percent premium over the company’s closing price of $36.25 Friday on the New York Stock Exchange. The total value of the deal to Loral shareholders would be more than $10 billion, the companies said.
Analysts said the deal makes good business sense and Wall Street investors gave their blessing, sending Loral shares soaring $8.25 to $44.50 and Lockheed Martin up 2.87-1/2 to $80.25 on the New York Stock Exchange.
Combined, the companies would take in about $30 billion in revenues per year. Lockheed Martin earned $1.02 billion last year on $22.9 billion in revenue. Its major products include the F-22 Stealth fighter and other aircraft.
In another sign of the evolution of the defense industry, Lockheed Martin gets nearly half its revenues from non-military sources, up from 33 percent a few years ago.
New York-based Loral earned $288.4 million in the fiscal year ending in March. Although the bulk of its $6.7 billion in annual revenues comes from defense sources, analysts say its businesses are highly diversified including radar jamming electronics for jet fighters, missile systems, flight simulators, aircraft data and voice recorders and air traffic control systems.
Loral’s rapid growth is credited to its chairman of 20 years, 70-year-old Bernard Schwartz. He has bought defense and computer businesses from Xerox Corp., Goodyear Tire and Rubber Co. Ford Motor Co. IBM Corp. and Unisys Corp., among others.