With an eye on OCI, L-3 breaks up government units

L-3 Communications Holdings Inc. will spin off several of its government services businesses to create a publicly traded company named Engility, the company announced today.

The board of directors unanimously approved the plan to create the independent government services company composed of L-3’s Systems Engineering and Technical Assistance, and Training and Operational Support Services units for the Defense Department and other government agencies, as well as for civil and international customers, according to the announcement dated July 28.

Tony Smeraglinolo, currently executive vice president of L-3 Services Group, will be Engility’s CEO upon completion of the spinoff.

The transaction, which is intended to be tax-free to L-3 and its shareholders, is expected to be completed in the first half of 2012.

As an independent entity, Engility will be able to more effectively address its customers’ priorities with cost-effective and innovative solutions and enhance its operational efficiency, the company said.

It also will expand its stand-alone growth opportunities beyond L-3’s areas of strategic focus, unencumbered by the organizational conflicts of interest regulations.

In 2011, Engility is expected to have pro forma sales of approximately $2 billion. The company will have approximately 10,000 employees.

“By creating an independent leader in government services, both L-3 and Engility will be better aligned and positioned with evolving customer priorities to grow their respective market leadership positions,” said Michael Strianese, L-3chairman, president and chief executive officer.

“Both companies will have the critical mass necessary to compete effectively in their respective markets and will be well-positioned with financial strength, flexibility and highly skilled employees dedicated to driving growth and delivering value to our customers,” he added.

L-3 will retain its Cyber, Intelligence and Security Solutions business units, currently part of L-3’s Government Services segment, and it will be renamed National Security Solutions upon completion of the transaction.

NSS will continue to focus on solutions for its DOD, intelligence and global security customers.

Steve Kantor, a senior vice president of L-3 and president of L-3 Services Group, will serve as president of National Security Solutions.

In 2011, National Security Solutions is expected to have pro forma sales of approximately $1.65 billion and approximately 6,000 employees.

The spinoff also represents a financially attractive, tax-free solution to L-3 and its shareholders, the statement said.

Pro forma for the spin-off, L-3’s consolidated sales growth and operating margins are expected to increase meaningfully and it is anticipated that L-3 will receive capital from Engility upon the spin-off, according to the statement.

L-3 Communications Holdings reported 2010 sales of $15.7 billion.

L-3 Communications Corp., of McLean, Va., ranks No. 8 on Washington Technology’s 2011 Top 100 list of the largest federal government contractors.