Lockheed to buy Black Hawk maker Sikorsky for $9 billion

By Andrea Shalal

WASHINGTON (Reuters) - Lockheed Martin Corp said Monday it would buy Black Hawk maker Sikorsky Aircraft from United Technologies Corp for $9 billion, cementing Lockheed's dominance in weapons making.

Lockheed will also review the possible sale or spin off of $6 billion in other information technology and services businesses.

The Pentagon's largest supplier called Sikorsky a "national icon" and said the net cost of the deal was around $7.1 billion, taking into account tax benefits. Lockheed also reported higher earnings and revenue for the second quarter.

The deal, first reported by Reuters on Sunday, also opens key foreign markets for Lockheed, which has annual revenues of $45 billion. It already dwarves its nearest competitors, the defense business of Boeing Co and Northrop Grumman Corp.

It comes just months after UTC said it would explore alternatives for Sikorsky, which it has owned since 1929 and which accounted for $7.5 billion in sales last year out of total UTC revenues of $65 billion.

This is Lockheed's largest acquisition since it bought Loral Corp's defense electronics business for $9.1 billion in 1996, and its $10 billion merger with Martin Marietta in 1994.

It marks the first major strategic move for both United Tech CEO Greg Hayes, who was elevated from finance chief in November, and Lockheed CEO Marillyn Hewson, who took her job in January 2013.

The two sides wrapped up key aspects of the deal late last week before Hewson jetted off to an annual UK air show, the Royal International Air Tattoo. Hewson returned in time for a telephone board meeting on Sunday evening that endorsed the deal, according to sources familiar with the process.

The news buoyed Lockheed shares close to February record highs set. Shares were up 1.8 percent at $204.78; United Tech shares were about 0.4 percent lower at $110.30.

"Sikorsky is a natural fit for Lockheed Martin and complements our broad portfolio of world-class aerospace and defense products and technologies," Hewson told analysts on an earnings call.

She said the deal would give Lockheed access to a $30 billion annual military and commercial rotorcraft market, and said Lockheed expected Sikorsky's commercial helicopter business to recover from an oil-price related slump in coming years.

Lockheed, which makes F-35 fighter jets, naval ships and government satellites, said it would continue to return cash to shareholders through dividends and to reduce outstanding share count to below 300 million shares by the end of 2017.

Democratic Representative Rosa DeLauro, who represents the Connecticut district where Sikorsky is based, said company President Bob Leduc assured her early Monday that Sikorsky would retain collective bargaining agreement and keep its name. Sikorsky has about 15,000 workers around the world.

Pentagon officials had no immediate comment on the deal. Last week, they said they would carefully evaluate any sale of Sikorsky, saying it was important to maintain competition and avoid market distortions.

The U.S. Defense Department can object to a merger involving key suppliers during a federal antitrust review, which in this case could be led by the U.S. Justice Department.

Hewson said Pentagon officials planned a detailed review, but she did not expect major obstacles.

Hewson said the deal would not reduce the number of competitors in the helicopter business, and Lockheed's plans to sell or spin off $6 billion in other businesses meant the company's overall size would not grow substantially.

"Between those two elements, it is very positive," Hewson told analysts when asked about the Pentagon's initial reaction.

Lockheed, advised on the acquisition by Credit Suisse and Fried Frank, said expects to close the Sikorsky transaction by late in the fourth quarter or early in 2016.

Lockheed said it would complete a strategic review of its government IT infrastructure services business and the technical services business within its missiles and fire control segment by the end of the year, potentially affecting about 17,000 employees.

The company said it would retain services businesses focused on defense and intelligence customers, including its extensive cybersecurity work for the U.S. government.

UTC said proceeds from the Sikorsky sale would fund more share buybacks. Its board authorized a share buyback of up to 75 million shares, worth about $8.3 billion based on Friday's closing price.

(Additional reporting by Lewis Krauskopf and Mike Stone in New York and Sagarika Jaisinghani in Bangalore; Editing by Chizu Nomiyama, Bernadette Baum and Nick Zieminski)