Justice inquiry puts brakes on Lockheed-Titan merger

Deal Killers: Will Ashcroft & Co. keep Coffman and Ray apart?

Michael Bechetti

The proposed $2.2 billion merger of defense giants Lockheed Martin Corp. and Titan Corp. will depend on the outcome of a Justice Department inquiry into bribery allegations against Titan, the companies said.

The companies issued an amended merger agreement April 7 specifying that for the deal to proceed, Justice must exonerate Titan from allegations that its international consultants and subsidiaries made improper payments to foreign government officials in exchange for contracts.

The revised merger terms stipulate that Titan must get written confirmation from Justice either that the government has resolved its investigation and will not pursue claims against the company, or that Titan has entered into a plea agreement and completed the sentencing process.

Titan's allegedly improper payments were made by business units in Africa, the Middle East and Asia.

Lockheed Martin of Bethesda, Md., announced its acquisition of Titan of San Diego last September, but the allegations, which surfaced in February, have delayed the deal. Both companies have conducted internal reviews of the matter and said earlier this month that they were "substantially complete."

Justice and the Securities and Exchange Commission are conducting separate investigations to determine whether the payments and Titan's disclosure of them are illegal.

Titan's shareholders were scheduled to vote in mid-March on the deal, but the company postponed the meeting to April 12 to give its internal investigators, as well as Lockheed Martin and the government, more time to complete their reviews.

The new agreement pushes Titan's shareholder meeting to June 7. It also stipulates that if the deal is not completed by June 25, either party may terminate the agreement, provided that certain conditions are met. The merger date may be extended to Sept. 24, according to the new agreement.

Under the new terms, Lockheed Martin has knocked down the buyout price it's offering Titan stockholders to $20 per share in cash from $22 per share in cash, an equivalent amount of Lockheed Martin stock or a combination of both. The reduction, a direct result of the bribery allegations, according to a Lockheed Martin official, reduces the deal's value to $2.2 billion from $2.4 billion.

The new merger agreement follows news that Titan shareholders who bought stock between July 24, 2003, and March 22 filed a class action suit alleging that company executives misstated financial results and omitted information about the foreign consulting fees.

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