What is the primary purpose of this transaction for Lockheed Martin?

The primary purpose is to separate and combine Lockheed Martin's government IT and technical services businesses (IS&GS) with Leidos. This strategic move aims to create a more focused Lockheed Martin, enhance shareholder value by unlocking approximately $5 billion in enterprise value, and form a stronger, combined entity with Leidos in the IT and technical services sector.

How will Lockheed Martin stockholders benefit from this deal?

Lockheed Martin stockholders are expected to benefit through a combination of a substantial cash infusion to the company (which can be used for debt reduction, dividends, or share buybacks) and a significant ownership stake (approximately 50.5%) in the newly combined Leidos entity. The transaction is also structured to be tax-efficient for them.

What is a Reverse Morris Trust transaction and why is it being used?

A Reverse Morris Trust is a tax-efficient way for a company to spin off a business unit and combine it with another company. Lockheed Martin transfers its IS&GS business to a newly created subsidiary (Spinco), which then merges with Leidos. This structure allows the separation and combination to occur without triggering immediate significant tax liabilities for Lockheed Martin or its stockholders, preserving value.

What will happen to the IS&GS business after the transaction?

The IS&GS business, along with its associated assets and liabilities, will be transferred to Spinco. Spinco will then merge with Leidos, with Spinco becoming a subsidiary of Leidos. The combined entity will operate under the Leidos name, focusing on government IT and technical services, and will be approximately 50.5% owned by former Lockheed Martin stockholders.

LMT 8-K: Material Agreements

Summary

Lockheed Martin Corporation (LMT) announced a significant strategic transaction via an 8-K filing on January 26, 2016. The company entered into a Merger Agreement and Separation Agreement to combine its Information Systems & Global Solutions (IS&GS) business segment with Leidos Holdings, Inc. (Leidos) through a Reverse Morris Trust transaction. This move aims to create a new, larger entity with enhanced market positioning in government IT and technical services, while Lockheed Martin focuses on its core aerospace and defense operations. The transaction is structured to be tax-efficient for Lockheed Martin stockholders, who are expected to receive approximately 50.5% of the combined Leidos entity. Lockheed Martin will receive a substantial cash payment of $1.8 billion from the combined entity, which it plans to use for debt repayment, dividends, and/or stock repurchases. This transaction represents a strategic divestiture of a non-core business segment and an effort to unlock shareholder value by separating and combining these assets with a synergistic partner.

Key Highlights

1Lockheed Martin to combine its Information Systems & Global Solutions (IS&GS) business with Leidos Holdings, Inc. in a Reverse Morris Trust transaction.
2The transaction is expected to unlock approximately $5 billion in estimated enterprise value for Lockheed Martin stockholders.
3Lockheed Martin will receive a one-time special cash payment of $1.8 billion from the combined entity.
4Lockheed Martin stockholders are expected to own approximately 50.5% of the combined Leidos entity.
5The transaction is structured to be tax-efficient for Lockheed Martin and its stockholders.
6Leidos will declare and pay a special dividend of approximately $1.03 billion to its stockholders conditioned on the merger's completion.
7Lockheed Martin will have the right to designate three individuals for appointment to the Leidos Board of Directors.

LOCKHEED MARTIN CORP 8-K Report, Material Agreement (Jan 26, 2016)

Summary

Key Highlights

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