Lockheed rumor mill goes for a spin

It has been several months since Lockheed Martin announced it would sell or spin-out the bulk of its IT business.

Officially, the company isn’t saying much, other than a review is underway and that it is expected to finish that review by the end of the year.

Apparently, that review includes talking to potential buyers as a report by Reuters indicates. They name Leidos, Science Applications International Corp., CACI International and Booz Allen Hamilton as companies that Lockheed has had discussions with.

Lockheed and the potential suitors have all declined to comment.

That discussions might be underway is not surprising, but if these talks are happening, then I think they are more fact-finding by Lockheed than serious sales negotiations.

Think about it, Lockheed is looking to sell about $6 billion in annual revenue. Given that size, there are few companies already in the government that can make a deal like that.

As one source told me, anyone big enough to make the deal is already doing a lot of the kind of work that Lockheed is selling. While buying Lockheed’s IT services business would increase scope and scale, it also would bring integration challenges. Because of the potential overlap, you probably wouldn’t be able to simply add the Lockheed IT business as a new line of business or as a wholly owned subsidiary.

So, my spin on the rumor mills says that Lockheed will either spin-off the business as an independent publicly traded company as L-3 did with Engility and ITT with Exelis, and then Exelis doing the same with Vectrus.

Another possibility is that a private equity firm will buy it.

And the third possibility is that Lockheed Martin will sell off the business by the piece. For the record, I think this is probably a long shot.

While I don’t doubt Lockheed is looking for a good landing spot for the business that will position it to grow and continue to serve its customers, there also is the need to generate as much cash as possible because of the pending acquisition of Sikorsky.

The Sikorsky deal is moving forward and has cleared the Justice Department’s review. Lockheed is paying $9 billion for the helicopter maker but there is a tax benefit of $1.9 billion, so effectively the price is $7.1 billion. Either way, getting $4 billion or $5 billion for the IT business will be a big help.

As I said, none of the companies mentioned in the Reuters article are talking, and I don’t expect any official word until there is a deal in place.