Titan shareholders OK takeover

Analysts: Lockheed Martin may trim offer price again

Titan Corp.

Titan Corp.

Location: San Diego

Employees: 11,500

Chairman and CEO: Gene Ray

Ticker NYSE: TTN

2003 revenue: $1.8 billion

2003 earnings: $291.1 million

Washington Technology Top 100 rank: 9

Lines of business: Homeland security and war on terrorism, C4ISR, transformational programs, and enterprise information technology

Major customers:Defense Department, Navy, Army, Defense Threat Reduction Agency, FEMA, FAA

Titan Corp.'s shareholders this month overwhelmingly approved a $2.2 billion takeover bid by Lockheed Martin Corp., but some analysts said Lockheed Martin might lower its offering price a second time to complete the deal.

Defense giant Lockheed Martin announced its intention to buy Titan for $2.4 billion, or $22 per share, last September. But it lowered its offer to $2.2 billion, or $20 per share, after the Justice Department and Securities and Exchange Commission launched investigations into allegations that Titan contractors and subsidiaries bribed foreign governments to win business.

Lockheed Martin might drop its price to $18 per share if any new or incremental information surfaces from the investigations, said one analyst who declined to be named. The analyst added that the merger agreement would indicate whether another price renegotiation could be allowed if another material event were to occur.

The government's investigations could cause Lockheed to reduce its price "if there's any good reason to believe Titan's valuation has been impaired," said Paul Nesbit, principal at JSA Research Inc., an independent aerospace equity research firm in Newport, R.I.

Any price change would have to be approved again by Titan's shareholders. Nesbit said that should SEC and Justice Department investigations drag out, the companies could extend the deadline once more.

Thomas Greer, a Lockheed Martin spokesman, said there was nothing in the merger agreement pertaining to a possible renegotiated offer, but he would not elaborate.

"If something is deemed to be material adverse, that provides us with grounds not to close [the deal]," he said.

With 130,000 employees and $31.8 billion in 2003 revenue, Lockheed Martin of Bethesda, Md., has won the No. 1 spot on Washington Technology's Top 100 federal IT contractors for 10 consecutive years. Titan of San Diego, which had 2003 revenue of $1.8 billion and ranked No. 9 on this year's Top 100, would strengthen considerably Lockheed Martin's position in the defense and intelligence communities.

On June 7, more than 98 percent of Titan's shareholders approved the company's acquisition by Lockheed Martin. Titan had rescheduled the shareholders' vote twice because of the investigations.

Under the stipulations of the company's acquisition agreement with Lockheed Martin, the Justice Department must give Titan a written statement exonerating it from the allegations, or Titan must enter a plea agreement and complete the sentencing process. Lockheed Martin must consent to any plea the company makes.

Either company can terminate the agreement if the conditions are not satisfied or waived and if the merger is not completed by June 25. But should Titan enter into a plea agreement with the Justice Department by June 25, the companies can end their agreement if the merger is not completed within three business days after a signed judgment has been entered or by Sept. 24, whichever comes first.

Bryan Sierra, a Justice Department spokesman, said the department does not comment on its investigations.

Titan also faces possible legal action by SEC, though it is unclear whether the agency's investigation will affect the deal. Titan has set aside $3 million to cover any fines arising from SEC's investigation. SEC notified Titan earlier this month that agency staff intends to recommend that SEC bring civil action against the company for alleged violations of U.S. securities law.

Under SEC's procedures, Titan can respond before agency staff makes an official recommendation. A Titan press release issued June 4 said the company would respond promptly.

Titan and Lockheed Martin officials said they are optimistic that the deal will be completed. Both companies have conducted their own internal investigations of the bribery charges.

Titan is confronting other legal challenges. On June 10, the Center for Constitutional Rights, a human rights group, filed a class-action suit against the company, accusing its employees in Iraq of conspiring with U.S. military to abuse Iraqi prisoners.

Titan, which provides translators for the Army in Iraq, has terminated the employee named in the suit. He is identified in the suit as Adel Nahkla. Wil Williams, Titan's vice president of corporate communications, declined to state the reason for the dismissal.

Arlington, Va., defense contractor CACI International Inc., which supplies interrogators for the U.S. military in Iraq, is also named as a defendant in the lawsuit.

Nesbit said the case is inconsequential. "It's not the kind of thing that bothers Lockheed, because it's used to a lot of relatively frivolous suits, and I consider this to be one of them," he said.

Earlier this year, some of Titan's shareholders filed lawsuits against the company, accusing its executives of concealing the alleged illegal payments to foreign government officials or violating their fiduciary duties by not preventing them.

Others are seeking compensation for the reduction of the value of the company's shares in light of Lockheed Martin's buyout when Lockheed reduced its offer to $20 per share from $22 per share.

Staff Writer Roseanne Gerin can be reached at rgerin@postnewsweektech.com.

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