RESTON, Va., Jan. 26, 2016 /PRNewswire/ — Leidos Holdings Inc. (NYSE: LDOS) today announced it has entered into a definitive agreement with Lockheed Martin (NYSE: LMT) pursuant to which Leidos will combine with Lockheed Martin’s realigned Information Systems & Global Solutions business (IS&GS) in a Reverse Morris Trust transaction.
With approximately $5 billion in sales and more than 16,000 employees worldwide, IS&GS has been a leading government services provider for more than 20 years.
“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, Leidoschairman 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.”
The combination will result in Lockheed Martin shareholders receiving approximately 50.5 percent of the combined company on a fully diluted basis, with pre-transaction Leidos shareholders owning the balance. The transaction, which also includes a special cash payment of approximately $1.8 billion toLockheed Martin, is valued at approximately $5.0 billion based on Leidos’ $55.22, 5-day volume weighted average stock price.
The transaction also contemplates that Leidos will pay a special dividend to its shareholders of approximately $1 billion, contingent on closing of the transaction. The special dividend to Leidosshareholders is expected to be funded through new borrowing by Leidos and cash on hand.
This combination is expected to add large, complex IT system implementation and operation experience, and additional federal and international IT solutions and services work to the Leidos portfolio, providing more venues to sell value added services such as cybersecurity and analytics.
Transaction Details
Upon closing of the merger, Lockheed Martin shareholders will receive approximately 50.5 percent ofLeidos shares, on a fully diluted basis, and pre-transaction Leidos shareholders will own the balance of the combined company’s shares.
The value of the transaction is $5.0 billion, comprising approximately a 50.5% stake in Leidos common stock, valued at $3.2 billion based on the 5-day volume weighted average stock price of Leidos’ shares on Jan. 25, 2016, and, immediately prior to the distribution of IS&GS, an approximately $1.8 billionspecial cash payment to Lockheed Martin, which will be used by Lockheed Martin after the closing of the transaction to retire debt, pay dividends or repurchase its shares. Upon closing, Leidos will have approximately 152.4 million common shares and common share equivalents outstanding. The transaction, other than the special dividend to Leidos shareholders, is expected to be tax-free for both companies’ shareholders.
The transaction is anticipated to close in the second half of 2016. Completion of the transaction is subject to customary closing conditions, including regulatory and Leidos shareholder approvals and receipt of opinions of tax counsel. The businesses will continue to operate separately until the transaction closes.
Governance and Management
Roger Krone will continue as Chairman and CEO of Leidos. Pursuant to the transaction agreement,Lockheed Martin will be entitled to designate three new directors to serve on the Leidos board of directors. Jim Reagan will continue to serve as CFO of Leidos. Leidos headquarters will remain inReston, Va. and the company will maintain a significant presence in Gaithersburg, Md. It is expected that members of the IS&GS senior staff will join the Leidos leadership team.
Citigroup is acting as exclusive financial advisor to Leidos. Citigroup, Bank of Tokyo Mitsubishi UFJ,Bank of America, JP Morgan and Goldman Sachs are providing committed financing for the transaction. Skadden, Arps, Slate, Meagher & Flom LLP and Fried, Frank, Harris, Shriver & Jacobson LLP are acting as legal advisors to Leidos.
Conference Call and Investor Information
Leidos will host a conference call at 8 am Eastern Time on Jan. 26 to discuss the transaction. The call can be accessed by dialing Toll Free: 877-869-3847; International: +1-201-689-8261. A live audio broadcast of the conference call along with a supplemental presentation will be available to the public through links on the Leidos Investor Relations website (http:ir.leidos.com).
After the call concludes, an audio replay can be accessed on the Leidos Investor Relations website or by dialing Toll Free: +1 (877) 660-6853; International: +1-201-612-7415 and entering passcode 13629288.
About Leidos
Leidos is a science and technology solutions leader working to address some of the world’s toughest challenges in national security, health and engineering. The Company’s 19,000 employees support vital missions for government and the commercial sector, develop innovative solutions to drive better outcomes and defend our digital and physical infrastructure from ‘new world’ threats. Headquartered inReston, Virginia, Leidos reported annual revenues of approximately $5.06 billion for its fiscal year endedJanuary 30, 2015. For more information, visit www.Leidos.com.
