Monday, June 28, 2004
Titan Corp. / Lockheed Merger Update
This $1.6 billion merger, between the U.S.'s single-biggest defense contractor and one of the larger of the corporate private army companies, seems off for the time being.0 comments
So, obviously, the interrogators from Titan Corporation just didn't get enough "actionable intelligence" at Abu Ghraib and Camp Bucca to keep the Pentagon (Lockheed's biggest client, as well as Titan's) happy.
Maybe our favorite private army corporation should start beheading Iraqis, as well—that'll make'em talk, boy. I mean, gee, it's just business.
Just tryin' to keep the customer satisfied.
Business as usual seen at Lockheed
By Lisa Sanders, CBS.MarketWatch.com
Last Update: 2:38 PM ET June 28, 2004
DALLAS (CBS.MW) -- Lockheed Martin isn't expected to aggressively pursue another acquisition in the near term following the failed merger with fellow defense contractor Titan, analysts said Monday, though they allowed that the deal's termination could be a negotiating tactic.
Lockheed (NYSE: LMT) scrapped the $1.66 billion acquisition after San Diego-based Titan (NYSE: TTN) failed to meet a Friday deadline calling for it to strike a plea agreement with the Justice Department to resolve bribery allegations. See full story.
"The deal is terminated," said Lockheed spokesman Tom Jurkowsky, who refused to comment on whether a reengineered deal might be in the works. "We don't talk about future mergers and acquisitions."
"With regard to our money, consistently, management is focused on deploying cash to enhance stockholder value," he added.
Among other things, that includes investing in the growth of its core businesses, share repurchases, dividend increases and debt reduction.
Shares of Lockheed fell 50 cents to $51.47 in afternoon trading. Titan's stock sank 98 cents, or 6.7 percent, to $13.55.
"[Lockheed's] not actively looking for anyone else," said Paul Nisbet, who covers the company for JSA Research. "This one with Titan just presented an opportunity and they jumped on it."
In a research report, Legg Mason wrote that it doesn't expect Lockheed to soon pursue another deal and added the company is likely to use the money it saved to buy back shares.
"If Lockheed were to use half of its $2 billion cash position to repurchase shares, the company could most likely repurchase about 20 million shares over the next two years, resulting in an estimated 10-cent increase in 2005 earnings per share," analyst Troy Lahr said.
Thomas Weisel Partners also expects the cash to be funneled to share repurchases or dividend increases.
"We are surprised by the apparent collapse of the Titan acquisition," analyst David Gremmels said in his report. "We had believed both parties remained motivated to complete the deal. ... It now appears this assumption was wrong, although there remains at least a chance that this exercise amounts to a negotiating tactic to extract improved deal terms."
Merrill Lynch analyst Byron Callan said in his report that the failure of the Titan deal leaves unresolved problems at Lockheed.
"These include need for defense network/information technology design capabilities, need for personnel with security clearances and for diversification away from new platform programs," Callan wrote.
Titan has 8,700 workers with security clearance, according to Nisbet.
Callan posited that Lockheed might indeed pursue other defense IT acquisitions -- meaning shareholders won't benefit from all the free cash flow.
"The fact that Lockheed has not concurrently announced plans for use of cash that would otherwise have been used in the acquisition suggests that this part of the company strategy remains open," Callan wrote.
Titan's shares, which reached a 52-week high of $21.99 on January 14, traded as low as $7 on April 11, 2003.
"After a [more than] 20 percent decline last Friday," added Credit Suisse First Boston's Adam Weiner, "we suspect Titan will face more selling pressure in the short term as the stock's investor base is likely to experience a period of high turnover/volatility."
The analyst expects to review the company's 2004 and 2005 earning-per-share estimates due to the uncertain resolution of the Securities and Exchange Commission and Justice Department investigations, as well as Titan management's focus on those issues and the merger instead of on business operations.
It's amazing to see that, on occasion, crime actually doesn't pay.
Especially, if you get caught...
posted by Gotham 4:06 PM
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