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. Last Updated: 07/27/2016

BAE Buys Lockheed Electronics Division




NEW YORK -- Lockheed Martin Corp., the world's largest defense contractor, said Thursday that it signed a deal to sell its aerospace electronics business to Britain's BAE Systems lnc. for $1.67 billion in cash as part of a plan to strip the company of non-core assets.


The unit, which produces products such as aircraft self-protection systems, infrared radars and reconnaissance and navigation systems, generated revenues of $1.2 billion in 1999, Bethesda, Maryland-based Lockheed said in a statement.


Lockheed, which declared its intention of selling the electronics business last September as part of a broad reorganization, conducted an auction process that generated a strong interest among prospective buyers, said Anita Antenucci, an analyst at Quarterdeck Investment Partners.


In step with other primary defense contractors, "Lockheed is moving to narrower, more targeted responsibility" by divesting sub-systems contracting, Antenucci said. "In effect, it is moving toward outsourcing by selling low-end businesses in third parties."


The deal, which is subject to regulatory approval, is expected to close around the end of the year.


Lockheed said it would use most of the $1.3 billion in cash it expects to receive after transaction costs and taxes under the deal to reduce corporate debt. Additionally, it will take a one-time charge against earnings of about $1 billion, or $2.50 per diluted share, in the third quarter after the deal.


BAE said in a statement that it would fund the buy from existing resources.


"The [aerospace electronics] business will complement BAE's established positions in the systems, defense and aerospace markets worldwide," said BAE chief executive John Weston.


BAE was formed last year through the combination of British Aerospace and GEC's Marconi defense arm. Last month it said it was cutting a net 3,800 jobs after a review of its operations.


Lockheed's aerospace electronics business will join BAE Systems North America, which employed nearly 18,000 people and had annual sales of $2.5 billion, BAE said.


Bear-Stearns & Co. Inc. advised Lockheed on the sale of the business, which employs about 5,300 people.


In a statement, Lockheed chief executive Vance Coffman said the reorganization announced last year was proceeding smoothly.


In May, Lockheed signed a deal to sell its control systems business, which makes products such as gears that control aircraft flight and engines, to BAE for $510 million. That deal is set to close in the third quarter of 2000.


In March, Lockheed said it made a deal to sell its 13.5 percent stake, worth about $600 million, in satellite maker Loral Space & Communications Ltd.


Lockheed is still looking at other businesses to sell under its divestiture plan, which it set last fall after a strategic review of the company.


Lockheed shares rose 15/16 to close at $26 on the New York Stock Exchange Thursday. The shares have traded between 16-3/8 and 39-7/16 in the past year. BAE stock rose 1.67 percent to close at 439.17 pence ($6.59) on the London Stock Exchange.