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Lockheed in Talks To Acquire Tech Firm CSC

By Renae Merle and Ben White
Washington Post Staff Writers
Thursday, October 27, 2005

Lockheed Martin Corp. and three venture capital firms are negotiating to acquire Computer Sciences Corp., the giant California technology firm that has enjoyed a boost from increased government spending on information technology services, according to sources with knowledge of the talks.

CSC employs 11,000 people in the Washington area, and a merger with Bethesda-based Lockheed would continue the move by old-line weapon-makers into the information technology field.

Lockheed is interested in CSC's government contracts, which include information technology consulting and the development of vaccines through a joint venture in Frederick, sources with knowledge of the talks said. The discussions with Lockheed and the three private equity firms -- Warburg Pincus LLC, Blackstone Group and Texas Pacific Group -- just began, said the sources, who spoke on condition of anonymity because the discussions are at an early stage.

A deal would significantly increase Lockheed's government information technology business, where it is already the largest competitor in a field that includes giants such as Northrop Grumman Corp. and General Dynamics Corp. It would also help Lockheed diversify from its better-known work of making fighter jets and satellites, profitable businesses that are expected to be squeezed by tight defense budgets.

Lockheed has tried in recent years to emphasize its information technology work, which ranges from a recent contract to develop an information processing system for the 2010 census to a contract to build an electronic archiving system for the National Archives and Records Administration.

Last year it failed in an attempt to buy Titan Corp., another large California-based government technology contractor. Lockheed abandoned that deal after an internal investigation uncovered possible bribery in some of Titan's overseas units.

A deal would add significantly to Lockheed's local workforce of about 15,000 employees.

"Size matters, and they [CSC] are a very large catch," said Robert Rubin, a managing director at National Capital Companies LLC, a Maryland investment bank. "This could be a transformational acquisition."

Spokesmen for Lockheed and CSC declined to comment. The discussions were reported in the Wall Street Journal yesterday.

Under one possible arrangement, Lockheed would buy CSC's government business, which accounts for about 33 percent of the company's revenue, and the private equity firms would buy the commercial units, a source familiar with the talks said. While CSC was not officially for sale, it has long been considered a possible takeover target.

Other firms were invited to bid on the company after Lockheed and the private equity companies submitted their bid several weeks ago, according to a source familiar with the transaction. "They are looking to find one or two other bidders," the source said.

CSC's government business has grown significantly in recent years, accounting for $4.6 billion in revenue in the 2005 fiscal year. That is up from $3.3 billion in fiscal 2003. A majority of that growth is because of its 2003 acquisition of DynCorp International LLC, a Reston-based contractor. Last year, CSC sold DynCorp's low-margin personal security and police training business but kept the information technology work.

The company's commercial business has also experienced significant growth. Its commercial business, including international sales, grew to $9.3 billion in fiscal 2005 from $7.8 billion in fiscal 2003. Among CSC's largest customers are two defense firms, General Dynamics and BAE Systems North America. CSC provides information technology services to both.


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