Lockheed Martin Corp., which led the defense industry in acquisitions in the past few years, now plans to shed businesses worth at least $1 billion in an effort to restore its credibility on Wall Street.
Executives at the Bethesda aerospace company -- the country's largest defense contractor, with $26 billion a year in sales -- are conducting a broad review of their far-flung operations in which "nothing is sacred," in the words of one insider.
Prime targets for divestiture include the company's business managing federal laboratories such as Oak Ridge in Tennessee and Sandia in New Mexico. Also under consideration for sale are pieces of Lockheed that provide technology services for government and private customers and electronics businesses, including one that makes automation equipment for the U.S. Postal Service.
While sources close to the company said they doubt it would sell off its core military aircraft manufacturing unit or the divisions that build and launch spacecraft, they said officials are considering ways to make them more profitable, including joint ventures with competitors and foreign aerospace companies. Recently, Lockheed announced a joint venture with Aerospatiale of France to make military aircraft.
Lockheed spokesman James Fetig declined comment on specifics, adding, "The strategic review is contemplating a range of very serious actions which will be announced at the appropriate time."
Chief executive Vance Coffman hinted at divestitures in a June 9 presentation to analysts, in which he delivered the unexpected news that instead of posting a profit of 72 cents a share in the second quarter, as analysts expected, Lockheed anticipated losing from 10 to 15 cents a share. The company is reeling from fewer deliveries than projected of its C-130J cargo plane, fewer orders for commercial satellites and delays and failures with some space launches.
But the review has gained intensity in recent days, industry sources said, with Chief Financial Officer Phil Duke telling the division heads some decisions would be made within the next 90 days. Lockheed's stock remains depressed and is down 31 percent in the past year. It closed yesterday at $35.06 1/4, down 18 3/4 cents.
"The more focus on core businesses the better," said Merrill Lynch & Co. analyst Byron Callan. "There's this perception this is a company that has lost its way."
Some in the industry question whether there would be buyers for the military and government-related businesses, given the limited number of companies left in the defense industry and possible antitrust issues that might arise if a competitor acquired them. There is a broader universe of buyers for some of the technology units, they said.
One business likely safe from the chopping block is the company's Global Telecommunications unit, formed last year to pursue the rapidly growing market for worldwide communications services. Lockheed officials have suggested in the past they would like to develop the business, then possibly spin it off. Plans call for the company to be combined with Bethesda-based Comsat Inc. if Lockheed succeeds in its proposed $2.7 billion acquisition of the satellite services company. The deal faces numerous regulatory and political hurdles.