WASHINGTON (Reuters) - Lockheed Martin Corp (LMT.N) has seen strong interest in its government services businesses, but will put off a decision on selling or spinning off the units until early next year, Chief Financial Officer Bruce Tanner said on Wednesday.
A strategic review of the business initially planned to conclude by the end of the year is now expected in the first quarter, Tanner told a conference hosted by Credit Suisse.
He said the company had seen “very high interest” in the services and information technology units. “This is real live buyers’ interest. That’s great, but that tends to take a little longer to handle that level of detail that is expected with more people involved in the process,” he said.
Reuters reported in October that Lockheed was exploring merging some of the businesses, with a value of about $4 billion, with another government services contractor.
Both Leidos Holdings Inc (LDOS.N) and CACI International Inc (CACI.N) have discussed a so-called Reverse Morris Trust (RMT) deal for the assets, a transaction that would avert a hefty tax bill, according to sources familiar with the matter.
Lockheed announced on July 20 that it would carry out a strategic review of government information technology and technical services businesses in two divisions with total estimated 2015 revenue of $6 billion, with the goal of spinning off the units or selling them to outside investors.
Lockheed makes F-35 fighter jets, naval ships and government satellites. It has been expanding its weapons-making capabilities and moving away from more commoditized services.
The programs being reviewed for sale or spinoff are mainly in Lockheed’s information systems and government services business, but also include units in its missiles and fire-control division. The programs, which have more than 17,000 employees, have been struggling due to reduced government spending, increased competition and delays in new contracts.
Tanner told the conference he would have preferred to keep the $6 billion business, parts of which offer “an incredibly high return on invested capital” and have great cash flows, but the business was not growing.
He said the decision to sell or spin off the businesses was pretty firm unless there was a dramatic and rapid change in the government marketplace. “I can’t say never ... but it would be hard for me to imagine that we’d deviate from this path.”
Additional reporting by Mike Stone in New York