Reuters - Titan shares rise sharply on Lockheed deal
Tuesday September 16, 2:31 pm ET
By Kathy Fieweger
(CHICAGO, Sept 16 (Reuters) - Shares of Titan Corp. (NYSE:TTN - News), a provider of information technology to the U.S. government, soared more than 26 percent on Tuesday, a day after Lockheed Martin Corp. (NYSE:LMT - News) said it would buy the San Diego-based company for about $1.8 billion.
Titan focuses on homeland security and helping the U.S. military become more mobile and interactive, in defense circles called "transformation." It specializes in command, control, communications and computers as well as intelligence, surveillance and reconnaissance.
The deal, which is valued at about $22 per share, 30 percent more than Titan's Monday closing price of $16.96, expands Lockheed Martin's information technology business, a growing sector following the Sept. 11, 2001, attacks.
Chris Mecray, analyst with Deutsche Bank, said the Titan purchase was a good fit with Lockheed's $3.2 billion in IT-related sales and puts it neck and neck for the top spot in that area with rival Northrop Grumman Corp. (NYSE:NOC - News)
Titan has had a string of procurement wins recently, winning about a dozen contracts worth an average $100 million.
"Our combined capabilities will continue to enhance the Defense Department's transformational systems and focus on the evolving threats that face our country," said Vance Coffman, Lockheed Martin chairman and chief executive.
A spokesman for Lockheed, the top U.S. defense contractor with about $31 billion in 2003 revenue, said the Titan business will be spread over three main sectors, primarily Lockheed's Integrated Systems and Solutions area. "It will not be a stand-alone company," spokesman Tom Jurkowsky said.
PAYING UP
Steve Binder, analyst with Bear Stearns, estimated that Lockheed is paying an estimated 14 times projected 2004 earnings before interest, taxes, depreciation and amortization, a premium to other recent IT deals.
"In our view, this transaction doesn't represent a trend," Binder said. "Instead, we believe the company will take a more conservative posture in further transactions."
The total value of the transaction is $2.4 billion, including the assumption of $580 million of Titan debt, Lockheed said. The Titan purchase is expected to add to Lockheed earnings immediately.
Lockheed, maker of fighter jets and commercial satellites, will pay Titan shareholders with cash, stock or both.
Lockheed said it expects the deal to close in the first quarter of 2004, pending regulatory approval. Shareholder approval is also required and the transaction is subject to approval by the Justice Department and the Pentagon.
"We will review it," said Pentagon spokesman Glenn Flood, who added that it was too early in the process to say anything about potential antitrust issues.
The various credit rating agencies -- Moody's, Fitch and Standard & Poors, generally affirmed Lockheed Martin's debt. Moody's said the deal was being prudently funded and that Lockheed's liquidity, including $2.1 billion in cash, was strong.
Separately, Titan on Tuesday said it had terminated a debt-exchange offer because of the Lockheed deal and that it and Lockheed plan a separate exchange offer for Titan's 8 percent senior subordinated notes due 2011.
Titan shares were up $4.29, or 25.3 percent, to $21.25 after reaching $21.50, a level not seen since June 2002, while Lockheed shares were down $1.16, or 2.3 percent, to $49.82 in midday trading on the New York Stock Exchange (News - Websites). (-Additional reporting by Andrea Shalal-Esa in Washington))
