Lockheed to buy Titan for $2.4 billion

Lockheed Martin Corp. announced Monday an agreement to acquire Titan Corp. for approximately $2.4 billion, a move that will strengthen its position in defense and intelligence technologies.

Titan of San Diego provides command, control, communications, computers, intelligence, surveillance and reconnaissance, enterprise IT and homeland security products and services. Nearly all of its sales are to the federal government.

For the first six months of 2003, Titan reported sales of about $815 million, 24 percent higher than the same six-month period last year. Titan's customers include the departments of Defense and Homeland Security, the intelligence community and various civil agencies.

Titan ranked 15th on the 2003 Washington Technology Top 100 list of federal prime contractors, while Lockheed Martin was the top-ranked contractor for the ninth straight year.

"Titan provides additional presence within the U.S. government customer base and expands our competencies," said Vance Coffman, chairman and chief executive officer of Lockheed Martin. "Titan's outstanding record of sales growth and the quality of its work force made this transaction very attractive to us."

The purchase price includes Lockheed's assumption of about $580 million in debt held by Titan. Lockheed officials announced the deal after the stock market closed for the day.

The acquisition has been approved by the boards of directors of both companies, and is expected to close in the first quarter of 2004, subject to approval by Titan shareholders, government regulatory reviews and other closing conditions included in the merger agreement.

Under the terms of the purchase offer, Titan's shareholders may choose to receive $22 per share in cash, an equivalent amount of Lockheed Martin common stock, or a combination of the two.

Lockheed is paying roughly a 30 percent premium over Titan's closing price per share of $16.96, according to Anita Antenucci, managing director of Houlihan Lokey Howard & Zukin, an investment bank in Fairfax, Va.

Antenucci said that Lockheed is paying more of a premium for Titan than General Dynamics Corp. did in its $1.5 billion acquisition of Veridian Corp. earlier this year, but that the higher price for deals of this magnitude makes sense. There are relatively few acquisition targets of this size in the government space, especially that offer benefits such as a work force with a large number of security clearance holders, she said. Also, low interest rates continue to make acquisitions accretive to earnings despite the high multiple, she said.

Lockheed Martin of Bethesda, Md., reported 2002 revenue of $26.6 billion and employs 125,000 people worldwide. By comparison, Titan has more than 11,000 employees in 41 states and 12 countries. The company's 2002 revenue was about $1.4 billion.