How the deal was done THE LOCKHEED-MARTIN MARIETTA MERGER

THE BALTIMORE SUN

Norman R. Augustine pushed himself away from the large mahogany desk, which, as always, was uncluttered except for a pen set, clock and family snapshots. He didn't want to be in the office. It was Saturday, and an uncommonly pleasant one for mid-March - 55 degrees and sunny.

But he'd called the emergency meeting, summoning a dozen top lieutenants to his second-floor office in Bethesda. The question: Should Martin Marietta increase its $1.93 billion bid for Grumman Corp.? Two weeks ago, the acquisition had looked assured. Now - on March 19, 1994 - it was jeopardized by Northrop's offer of $2.04 billion.

So Mr. Augustine, the chairman and chief executive officer, leaned back in his chair and asked his associates: Raise or fold?

Consensus came quickly: Fold.

Mr. Augustine was relieved. Martin Marietta had been on a two-year buying binge. Now he could look forward to just running the aerospace giant.

After the meeting ended, he took a deep breath and looked out the window, idly watching ducks paddle across the man-made lake that separates Martin Marietta's corporate headquarters from Loral's Federal Systems complex.

He looked at his watch. Five o'clock. Nearly everyone had gone )) home to prepare for the company's management retreat the next day in Arizona. As he considered doing the same, his phone rang.

The caller was an old friend and competitor from across the country: Daniel M. Tellep, Mr. Augustine's counterpart at Lockheed Corp. in California.

That call set in motion a remarkable series of events that will culminate Wednesday in Chicago. A year after the first %o exploratory phone call, shareholders are expected to approve a merger that will create Lockheed Martin Corp. It's the largest merger in the history of the American defense industry and it will create the country's 16th-largest industrial corporation.

Interviews with Mr. Augustine, Mr. Tellep and other principals, and an examination of documents filed with the Securities and Exchange Commission, yield a detailed picture of how such a mammoth merger was made in secret - and kept that way until mere hours before a formal announcement.

It's a tale of clandestine meetings around the country, code names and subterfuges. And there were misadventures and mishaps - even forgotten code names - all along the way.

The California call

While Mr. Augustine met with his top lieutenants in suburban Maryland, Mr. Tellep was doing the same a continent away, in California's high desert.

That Saturday, Mr. Tellep and his associates were reviewing a long list of companies Lockheed might buy as it struggled to survive the worst defense-industry shakeout in half a century.

In a sprawling conference room in Calabasas, they studied 20 large, three-ring, highly confidential binders. Each one contained detailed financial analysis of a competitor - including the price Lockheed was willing to pay to acquire it.

One by one, they examined the binders. They considered Grumman, but the price was too high. Then Federal Systems Co., but that had recently been acquired by Loral Corp., so it was scratched from the list. They desperately wanted a space company, but prices were exorbitant.

After four hours, they had gotten nowhere.

" Did we miss something?" Mr. Tellep prodded. " Is there some possibility that we have overlooked?"

There was one.

It was crazy. So off-the-wall that the company wasn't even among the 20 they'd been discussing.

After the meeting, Mr. Tellep wanted to talk - privately - with Vincent N. Marafino.

The two men are close, and Mr. Tellep often seeks the counsel of Lockheed's 64-year-old vice chairman and chief financial officer.

Mr. Marafino cautioned that there would be huge problems with the idea. But on balance he thought it should be pursued.

" Should I call today, or think about it over the weekend?" Mr.

Tellep asked.

" Call now."

So Mr. Tellep walked to his office and picked up the phone.

" Norm, we've been noodling and thinking about acquisitions and things. Now, here's an idea that sounds off the wall, and I don't want to interfere with any plans you have for Grumman. But would you have any interest in putting Lockheed and Martin Marietta together? A merger of equals?"

He didn't wait for a response, just plowed on with the pluses.

" If you look at it, it's really unique, Norm. Your market capitalization is about the same as ours. We have about the same sales - not perfect, but in the same ballpark. We know you, and you know us."

It was true. The two companies had worked together in a failed joint effort to acquire LTV Corp.'s missile and aerospace division a year earlier and the two men knew and respected one another.

" Would you be interested in sitting down and talking about this?"

" I sure would," Mr. Augustine replied. " I sure would."

The casual words belied what both men knew. This wasn't just another shoe dropping in the merger frenzy sweeping corporate America. This would create the biggest defense company in the world. One with 175,000 employees, sales of more than $23 billion a year, and a business backlog of more than $42 billion.

Heady stuff, even for two men so accustomed to dealing with big business and big numbers.

In Maryland, Mr. Augustine put down his phone and walked into the office of Thomas Young, the company's president. Mr. Young had lingered after the meeting.

" Fasten your seat belt," Mr. Augustine told him with a broad grin. " Here we go again."

The merger's seed

Although no one recognized it at the time, the seed for a merger had been planted eight months earlier. Then-Secretary of Defense Les Aspin had summoned executives of the nation's largest defense contractors to a private dinner at the Pentagon on July 21, 1993.

Following a pleasant meal of roast beef, baked potatoes and green beans, Mr. Aspin came to the point.

The end of the Cold War and resulting federal budget cuts meant the Pentagon could no longer afford to keep all of them in business. Instead of five tactical aircraft manufacturers, there would be enough business for only two, he warned. Instead of three space-launch companies, there would probably only be two.

The message was clear: companies would have to consolidate to survive.

" It was like the first day in school, when the principal tells the class to look at the student on your left and on your right," Mr. Augustine told an acquaintance. " One will be gone by the time you graduate. Only in this case, both will be gone."

It was already happening - there had been more than three dozen mergers and acquisitions in the industry since late 1992.

And although Lockheed and Martin Marietta had never discussed a merger, both had had a private thought or two.

Under lock and key in Bethesda was a piece of paper with the names of a handful of competitors typed on it - a " short list" of firms with whom Martin Marietta would consider merging. The ranking had been compiled after detailed financial analysis of each company.

Lockheed Corp. led the list.

In California, Lockheed executives had done exhaustive analysis Martin Marietta - three binders worth.

L Their conclusion: Martin Marietta would be an excellent fit.

Arizona

As Martin Marietta's managers arrived in Arizona the day after Mr. Tellep had called Mr. Augustine, the weather was great. Sunny, with a light breeze and temperatures in the 70s, it was exactly what draws tens of thousands of " snowbirds" - people fleeing the snow and cold of the East and Midwest - to the state in the winter and early spring every year.

The 200 Martin Marietta employees gathered for the annual management retreat were staying at Marriott's Camelback Inn, a 125-acre luxury resort just outside of Scottsdale.

There would be meetings, sure - but also golf, tennis and relaxation in the sun.

For a select few managers, there was something more.

Mr. Augustine pulled his top associates aside to tell them about Saturday's phone call. They included Mr. Young, the president; CFO Marcus C. Bennett; general counsel Frank H. Menaker Jr.; and John E. Montague, director of corporate development.

Initial response was mixed, and corporate history makes it easy to see why.

Both Lockheed and Martin Marietta have rich traditions. Both have historically played important roles in America's defense. And both companies take pride in their pasts.

Today, Martin Marietta is best known for its Patriot missiles, Titan rockets, satellites and electronic equipment, including night vision and target detection systems used on fighter planes.

But the company's history can be traced all the way back to the birth of aviation. Inspired by newspaper articles about the Wright brothers, Glenn L. Martin began building a plane in an old church in Santa Ana, Calif., in 1907.

In 1909 that plane had its first flight. It only went 100 feet, which doesn't sound like much today - but it was enough to launch the Glenn L. Martin Co. In 1929, the company moved to the Baltimore area and became the nation's leading aviation company.

Its Middle River plants employed 53,000 workers. They built the China Clipper, one of the aircraft that opened the world to commercial aviation in the 1930s. They also built B-26 Marauder bombers during World War II, and the rockets that powered the two-man Gemini spacecrafts into orbit in the 1960s.

Lockheed's history is equally lengthy and distinguished. The company has been turning out aircraft since its founding in Santa Barbara, Calif., in 1916 as the Loughead Aircraft Manufac-turing Co. by brothers Allan and Malcolm Loughead. The Scottish name is pronounced " Lockheed" and the brothers went to the more phonetic spelling later because they were tired of the hearing the company's name mispronounced as " lughead."

Amelia Earhart was flying a Lock-heed Electra when she disappeared in 1937, and veterans of World War II still speak fondly of its twin-tailed P-38 Lightning fighter.

For years it manufactured commercial planes, such as the Constel-lation, until it dropped that part of the business in the early 1980s, ending production of its wide-bodied L-1011.

Lockheed also made the U-2 spy plane flown by Francis Gary Powers and shot down over the Soviet Union in 1960.

It is currently producing the F-16 fighter and developing the F-22 - the Stealth fighter that the military hopes will be the next generation of fighter plane.

Both companies stood to lose some of their rich histories in a merger, and the Martin Marietta executives knew that.

Nonetheless, they told Mr. Augustine to proceed.

The first meeting

Mr. Augustine called Mr. Tellep on Monday, March 21, and they agreed to meet secretly the next day in Phoenix.

Mr. Augustine had to be careful. If he missed the retreat's morning session, it would raise eyebrows. So he set the meeting with Mr. Tellep for 1 p.m., after the others broke for golf and tennis.

Even that carried some risk of raising gossip. If he and his four top executives were gone too long, others would notice. Mid-level managers, he knew, notice immediately when top bosses break out of the routine.

Shortly after noon on Tuesday, March 22, the five men made the 30-minute drive to the Hyatt Regency on Second Street in Phoenix. Waiting were their counterparts at Lockheed: Mr. Tellep and Mr. Marafino; Vance D. Coffman, executive vice president; John F. Egan, VP of corporate development; and William T. Vinson, general counsel.

No introductions were needed; this was more or less the same group involved in the unsuccessful LTV project.

The men quickly retired around a conference table in Section " A" of the Remington Room on the second floor. The room was small - 23 feet by 16 feet - and separated from Section " B" by a floor-to-ceiling folding partition. Although there was nothing special about the room, it still cost $150 a day.

They called room service to order the $9.50-a-head Deli Express - a large platter of breads, turkey, ham and roast beef, and sliced cheeses. Soft drinks, coffee, tea and brownies were also served.

Mr. Augustine fidgeted. The stream of people from room service made him nervous, and he feared the walls were too thin. He began speaking in a unusually soft voice.

The talk turned almost immediately to the " social issues" - the questions that can make or break any merger. Who will be the chairman and CEO? Where will the headquarters be located?

Both sides knew there were other huge obstacles, any one of which could scuttle the plan in a split second.

Antitrust concerns would almost certainly be raised by competitors, maybe even the government itself. There was no assurance that the Defense Department would go along; it might be afraid such a huge defense contractor would reduce competition.

There was Mr. Augustine's stated opposition to being in the aircraft-building business.

And General Electric Co., which held a 23 percent interest in Martin Marietta, would have to be persuaded to back the merger.

And there was the obvious Big Issue: Could these two distinct, proud corporations really be molded into a single company that would be more profitable?

Each side offered information about its various operating units - not corporate secrets, just things that anyone could find in annual reports. Everyone knew the meeting was exploratory at best.

" We're not trying to say, 'Yes, let's merge,'" Mr. Tellep reminded the group. " We're just trying to establish something very simple - is it worth continuing discussions or not?

" Do we shake hands and say, 'Nice idea, but let's forget it,' or do we continue our discussion?"

It was unanimous: Talks should continue.

In theory at least, the merger made sense. The defense industry was in sharp decline. Mergers or acquisitions were the only ways to grow. As the group talked, they could see that Martin Marietta and Lockheed didn't overlap in many areas - so they wouldn't have to discard huge units and disrupt earnings. And the consolidation of some businesses and administrative functions could mean saving millions.

By now, it was almost five o'clock and lunch was only a memory. A second call to room service brought junk food - Twinkies, pretzels, Snickers, peanuts and popcorn.

Between bites, the group tackled the critical question of secrecy.

The primary objective was to prevent any leaks. But if there were any, there had to be a plan to throw people off the scent.

With that in mind, Mr. Augustine was given the code name " Kent," borrowed from Northrop's chairman, Kent Kresa.

Martin Marietta had been annoyed by Mr. Kresa's hostile bid for Grumman, which had prompted speculation that Martin Marietta might let Northrop buy Grumman, then turn around and pick off Northrop.

" That will be our cover story," Mr. Augustine said. " When people hear 'Kent,' they will think of Northrop."

The code name for the merger talks was " Earthquake" because Northrop was located near the area in Southern California that had been rocked in January.

Martin Marietta was " Mars," named after the spacecraft it built that traveled to the Red Planet. Lockheed was " Lunar."

Mr. Tellep was " Mr. Lewis."

The merger was not to be discussed on car phones. No one would mention Lockheed at Martin Marietta, or vice versa.

For now, it was agreed, no one outside the room would be told of the merger talks. But Mr. Augustine said he would contact Martin Marietta's board members the next day and bring in the investment banking firm of Bear Stearns to represent the company. Mr. Tellep made plans to notify the Lockheed directors and retain Morgan Stanley for financial advice.

A flurry of smaller meetings followed over the next eight days.

At one on March 29 in Scottsdale, the general counsels of both firms drafted a standard legal document establishing the playing rules for both sides during the merger talks.

It spelled out the information to be exchanged, and specified the data could only be used by the two companies. Equally important, neither firm could try to acquire the other if the merger failed.

Another meeting convened on Wednesday, March 30, at the Ritz-Carlton Hotel in Tysons Corner, Va. Executives of both companies met with investment bankers, probing finances and discussing how to avoid diluting stock value.

Most critical was a meeting on Tuesday, March 25, in a room at the Marriott Suites near Dulles International Airport. In attendance for Martin Marietta were its president, Mr. Young, and Mr. Montague, director of corporate development. For Lockheed were Mr. Coffman, executive vice president, and the VP for corporate development, Mr. Egan.

The quartet spent the entire day examining both companies' vast array of businesses scattered throughout the country and world. They talked about how a combined company would be far stronger and more competitive than either could ever hope to be if they remained separate firms.

Confusion

After the initial furious pace, both sides settled down to work on internal documents, and it was almost three months before the next round of face-to-face meetings.

But there were frequent phone calls, and occasional confusion.

One day, Mr. Tellep urgently needed to talk with Mr. Augustine. When a secretary at Martin Marietta asked who was calling, he couldn't remember his code name.

" Uh, uh...I'll have to call back," he said, hanging up abruptly.

On another occasion, he got his code name wrong.

A secretary handed Mr. Augustine a message asking him to call " Mr. Kent."

" It can't be from Mr. Kent," Mr. Augustine snapped at the startled secretary. " I'm Mr. Kent."

It was during this time that the companies began considering a date for merger.

It was quickly apparent that a final agreement could not be reached before Martin Marietta's scheduled shareholders meeting in Atlanta on April 28, or Lockheed's on May 10 in Burbank, Calif.

This was a problem.

Neither Mr. Tellep nor Mr. Augustine wanted to be in the position of misleading investors if someone asked about acquisitions or mergers.

So they agreed to call off the talks - briefly - until after the shareholder meetings.

Growing tension

Three months into the process, the pressure for secrecy was unrelenting and the stress was beginning to show.

On Tuesday, June 14, Mr. Augustine approached a meeting with Mr. Tellep in some distress. The shroud of secrecy they'd worked so hard to maintain had been torn by carelessness.

The two corporate jets were parked wing to wing at a Cincinnati airport.

Both men instantly realized that was a blunder not to be repeated, but Mr. Augustine couldn't get past the error.

What if people at the airport noticed the planes and put two and two together?

Mr. Tellep brought his own set of worries to that day's talks at the Omni Netherlands Plaza Hotel. Some of Mr. Augustine's past comments were troubling him and he wanted reassurance.

It was no secret in the defense industry that Mr. Augustine was reluctant to get into the aircraft-building business. But that was a major component of Lockheed's portfolio.

Mr. Tellep insisted on a guarantee that after the merger, the new company wouldn't jettison Lockheed's division that produces the F-16 fighter, the C-130 cargo plane or the new F-22 Stealth fighter.

Mr. Augustine explained that his thinking had changed because of the consolidation that had already taken place - including Lockheed's acquisition of General Dynamics Corp.'s military aircraft operations. He had seen how fewer companies in the defense marketplace had assured steady business for everyone.

He gave Mr. Tellep the guarantee he wanted. Mr. Tellep relaxed and the meeting proceeded.

Another delicate issue was also resolved in short order. Where would headquarters be located?

The men quickly agreed that the new company would be based near Washington. It was important, they knew, to be close to the Pentagon, their biggest client. However, they made no decision on whether the headquarters would be in Bethesda or even on the Maryland side of the Potomac River.

The composition of the board of directors was settled speedily, too. A 20-member board would be divided equally among the two companies. (They did not negotiate who would fill the positions, however.)

These were long strides - but important issues remained and the two men agreed to meet again in two weeks.

Leaving the hotel, Mr. Augustine was stunned when he picked up a copy of the Cincinnati Enquirer.

Right there - on the front page! - was a promo to a business story speculating that Martin Marietta was seeking to acquire General Electric Co.'s Aircraft Engine division, one of the biggest employers in the Cincinnati area.

Upon reflection, however, Mr. Augustine decided the story was helpful, even if it wasn't true. Martin Marietta made no move to correct the story.

" It adds to the confusion," Mr. Augustine observed later. " And confusion is good at this time."

The top job

Cordiality permeated the meeting on Thursday, June 30. Mr. Tellep had invited Mr. Augustine to his room at the Willard Hotel in Washington.

Mr. Tellep articulated the great respect he had for Mr. Augustine. And Mr. Augustine answered that there was no one in the industry that he trusted more than Mr. Tellep.

It was like best buddies trying to decide who would use the one ticket they had for the final game of the World Series.

But a baseball ticket was not the issue. The top job was.

Mr. Tellep said Mr. Augustine should be chairman and CEO. In turn, Mr. Augustine offered the job to his friend.

The two men have known each other for years.

Mr. Tellep was impressed by his friend's work as under secretary the Army before joining Martin Marietta in 1977, and knew that Mr. Augustine had been considered for secretary of defense by both Presidents Bush and Clinton.

They had worked together on the LTV effort as well as on the development of the military's MILSTAR communication satellite program.

Their friendship, though, grew through their membership in the Conquistadores de Cielo - a fraternity of CEOs from major aerospace firms. When the group held retreats, Mr. Tellep and Mr. Augustine spent time together riding horses at a dude ranch in Wyoming.

Mr. Tellep would discuss his passions for opera, flying glider planes and painting. And Mr. Augustine would tell about his adventures dogsledding in Alaska, exploring a volcano in the Antarctic, and stalking big game in Africa (with a camera).

The two friends' final agreement? Both would have the job.

Daniel Tellep, 64, would serve as chairman and CEO until he reached the mandatory retirement age of 65. Mr. Augustine, who is 59, would succeed him.

" I would have been happy to be second-in-command," Mr. Tellep, who joined Lockheed in 1955 as a scientist for the Missiles and Space Systems division and became chairman and CEO in 1989, said later. " And so would Norm. I guess it came down to an age-and-beauty thing."

Setting the date

Scheduling meetings developed into an art form as the merger talks progressed. Locations were chosen more for secrecy than convenience.

The locations had to be moved around. And they had to be in out-of-the-way places, where the likelihood of being noticed was slight.

Sometimes it worked. Some-times it didn't. Wednesday, July 13 fell into the latter category.

The two CEOs and their chief financial officers met at the Hyatt Regency at the Dallas/Fort Worth International Airport for a full day of talks. Mr. Young was also there.

They discussed the need to strengthen both company's " poison pills" to fend off hostile takeovers.

No one wanted another Grumman, where Northrop intervened after a merger with Martin Marietta had been arranged and announced.

The issue of where to locate the headquarters resurfaced, and a site was chosen: Martin Marietta's Bethesda complex.

It was mid-July and they had reached the point where a date could be set to announce the merger. Tuesday, August 30, was chosen - just four days before the opening of the Farnborough, England, International Air Show. The event attracts military exhibits from around the world and hundreds of thousands of spectators.

Like annual meetings, the air show is an event where people might ask about mergers and acquisitions.

They also decided it was time to meet with Defense Secretary William J. Perry.

The Defense Department would be the company's biggest customer - accounting for two-thirds of its revenues.

They wanted Mr. Perry's approval before they announced the merger.

It had been a long day, and the men were tired and hungry. Mr. Augustine, Mr. Young, and Martin Marietta's CFO, Marcus Bennett, decided to have dinner in the hotel restaurant. They felt safe because Dallas wasn't a city where either company had major operations.

As they sat down and waited to order, however, the three men were immediately recognized. Just 20 feet away were the top managers of the Javelin, a shoulder-fired rocket designed to destroy tanks. The rocket is being jointly developed by Martin Marietta and Texas Instruments Inc.

" What brings you to town?" asked Robert E. Vaughan, Martin's program manager for Javelin.

" Oh, we're here for an investment briefing with analysts," a flustered Mr. Augustine mumbled.

" Where's the meeting? I'd like to attend."

Mr. Augustine fumbled for words again before changing the subject.

Persuading the Pentagon

By early August, both Mr. Tellep and Mr. Augustine were jittery. ++ They needed the Pentagon's approval to proceed.

Their strategy for Wednesday, August 3, was that only one of them would meet with the secretary of defense. Mr. Tellep was chosen because he'd worked with Mr. Perry's secretary for years and she could quickly arrange the confidential meeting.

Some delicacy was required. They couldn't put Mr. Perry on the spot or make him, in effect, an insider to the merger.

So it was agreed that Mr. Tellep would talk only in general terms about Lockheed's plans to merge with another defense firm. He wouldn't mention Martin Marietta unless Mr. Perry specifically asked who the other company was.

It was time for the 9 a.m. meeting in the secretary's third-floor office in the Eisenhower corridor of E-ring - the outer ring of the five-sided building. But Mr. Perry was running late and Mr. Tellep was left to wait in the outer office.

Unaware of the delay, Mr. Augustine fidgeted in the hall, about 20 paces from the entrance to the outer office.

He inspected a display case containing an olive drab, waist-length and tight-fitting military jacket with a circle of five silver stars on the epaulet - to this day known as the " Eisenhower jacket."

He glanced at the three-inch-high banner headline on the May 5, 1945 edition of the New York Herald Tribune, proclaiming " VICTORY." He read the first few paragraphs of the accompanying story about the unconditional surrender of Nazi Germany.

He looked at his watch again. Fifteen minutes had gone by. What was happening in there?

He stuck his head through the door of the outer office. Mr. Tellep instantly waved both hands in front of his chest and said, " No. No. Go away."

He got the same response when he looked in again 10 minutes later.

He was still in the hall, reading more about General Eisenhower, when Larry K. Smith, special assistant to the secretary, walked by and, ignorant of the secret merger, offered a silly pleasantry that wasn't.

" Oh, Dan Tellep is in with the secretary now. The next big merger must be Martin and Lockheed."

Mr. Augustine was too startled to reply.

" I could have died," he recalled later.

Inside the office, Mr Tellep's meeting with Mr. Perry and Deputy Secretary John M. Deutch finally had started. As planned, Mr. Tellep spoke only in vague terms. But he did make it clear that he was talking about a merger with one of the industry's leaders.

When the secretary voiced no objections to knowing more detail, Mr. Tellep left briefly, returning to the small group at the round conference table with Mr. Augustine.

His presence registered immediately with Mr. Perry.

" This is big," Mr. Perry said.

The four men discussed the merger's benefits for Lockheed, Martin Marietta and the Defense Department. The latter issue was critical in winning Mr. Perry's approval.

The merger could save the Pentagon billions of dollars over years, they explained. By reducing overhead, the new firm could bid lower for future contracts and reduce the price on current cost-plus programs.

Privately, both men were hoping to hear, " This is great. I'm all in favor of this."

But the defense secretary was circumspect.

He had no objection to the size of the companies.

But he was concerned about whether there would be adequate competition left.

Mr. Perry reminded them of new regulations requiring the Pentagon to sign off on any merger within the defense industry. And he told them he couldn't pass judgment on the plan until an impact study had been conducted.

When they left, neither man knew whether the Defense Department would approve the merger or shoot it down.

The antitrust barrier

One hundred and forty-two days had passed since Mr. Tellep's phone call to Bethes-da, but none were darker than Tuesday, August 9.

Lockheed had retained the law firm of O'Melveny & Myers, experts in antitrust. Martin Marietta had hired Dewey Ballantine.

When Mr. Tellep and Mr. Augustine met with representatives from both firms in O'Melveny & Myers's Washington offices that Tuesday, the news was all gloom and doom.

The dozen lawyers spoke one by one, and the messages were clear:

" This is an antitrust problem."

" That's an antitrust problem."

" If you move forward, you'll have to spin off big chunks of your businesses."

" You will have to sell off your satellite business."

Both companies, they warned, might have to divest themselves of their big satellite businesses.

" Why are we trying to do this? It will never pass muster," Mr. Tellep asked his colleague as they walked out of the meeting.

Mr. Augustine didn't answer.

The next day dawned a little brighter. Frank Menaker, Martin Marietta's general counsel, took Mr. Augustine aside to explain.

" Everything is going to be okay, Norm. We had to do this to show you the worse case.

" You have to realize those guys were just trying to do their jobs. They were trying to identify potential pitfalls. Don't worry, we're going to get this thing through."

By day's end, the merger was back on track. But the worst-case scenario had been constructed: Both companies agreed that they would call it off if the government ordered them to sell substantial parts of their businesses.

Six days

Only six days remained before the announcement. And much remained un-done when Mr. Tellep and Mr. Augustine huddled at the the Stouffer Renaissance Hotel in Denver on Wednesday, August 24.

In Dallas, they had discussed who would fill top executive positions but final decisions needed to be made.

Choosing was hard. There just was not room for everybody. In the end, the dozen jobs immediately under the chairman and president were divided evenly between Lockheed and Martin Marietta employees.

By now, the heads of public information at both companies had been briefed. But an announcement of this magnitude required special handling. Secrecy continued to be critical.

They decided to retain Jack Hilton Inc., a Park Avenue media consultant company. And two outside public relations firms were hired - Powell Tate Inc. in Washington and the Aber-nathy/MacGregor Group in New York - to produce press kits, arrange for a two-way satellite press conference between the Hotel Macklowe in New York and the National Press Club in Washington, and to notify the media.

On Saturday, Aug. 27, Mr. Augustine met at the Bethesda headquarters with his 17-member board of directors to win final approval for the merger.

Two days later at 7:30 in the morning, Martin Marietta's corporate jet picked up Mr. Augustine, Mr. Bennett, Mr. Menaker and two of the company's public relations officials at Dulles and flew them to New York. They took rooms at the New York Palace on Madison Avenue. The Lockheed executives had arrived the day before and set up base at the Four Seasons, seven blocks away.

Mr. Tellep and Mr. Augustine were whisked to the offices of media consultant Jack Hilton, where they were briefed for their meeting the next day with Wall Street analysts. Then a mock press conference was held, with the CEOs answering questions by a dozen consultants pretending to be reporters.

Their performance was taped, analyzed and evaluated. The real thing had to be perfect - this would be one of the biggest business stories of the year and covered by reporters around the world.

It was decided that some questions should be answered only by Mr. Tellep, and that Mr. Augustine would respond to others.

At one o'clock, Mr. Tellep and his senior managers slipped off to the law office of O'Melveny & Myers to meet with Lockheed's board of directors. Attorneys briefed the board on a termination agreement, and the investment bankers agreed to the stock-swap provisions. But the board still had questions about whether the F-22 and C-130 cargo plane programs would be protected.

Three hours later, the board voted to approve the merger.

Mr. Augustine still had General Electric Co. to resolve. As a result of Martin Marietta's acquisition of GE's aerospace division, the company controlled about 23 percent of Martin Marietta's stock. Its support was crucial to the merger.

Mr. Augustine tried to reach Jack Welch, GE's chairman and CEO, by telephone. But Mr. Welch, an avid golfer, was taking part in a tournament at Cape Cod.

Mr. Augustine kept calling. No luck. Then he was told Mr. Welch had won the tournament, and he started to relax a little. The two men spoke at two o'clock, and the GE chief gave his blessing.

" Boy, we're okay now," he told his staff.

They were less than 24 hours away from announcing the merger, and the shroud of secrecy had not been pierced. But suddenly, that began to change. Reporters from The Sun, Los Angeles Times, Wall Street Journal and New York Times were beginning to ask questions.

That Monday night, the New York Times moved a story on the wire saying the companies were discussing a buyout. Lockheed and Martin Marietta public relations officials rushed into a meeting. Should they stonewall and say nothing? Or move up the announcement?

Mr. Augustine decided that it was more important that the newspapers have the facts right. So at 12:01 a.m. on Tuesday, Aug. 30, Susan M. Pearce, Lockheed's vice president of communication, called the New York Times news desk to say that its story was incorrect - that in fact the companies were discussing a merger.

Later that morning, Mr. Tellep and Mr. Augustine were exhilarated despite the leak.

They met at 8:30 with analysts for 90 minutes, then went to meet with reporters and answer their questions.

Six months of meetings, secrecy, ruses, code words, missed signals and stress had paid off. The new company, a merger of two aerospace giants with proud and productive histories, would be stronger than either of them. Both men had tolerated months of waiting and wondering because both believed their companies' futures must be intertwined to survive.

But they also knew that in the merger, some of the heritage of both companies would be lost.

'We did it!'

Mr. Augustine was fixing a sandwich at a post-press conference buffet for company executives when Mr. Tellep walked by. The Martin Marietta executive raised a clenched fist, exultant.

" We did it!" he said.

Mr. Tellep smiled in response.

Then he saw Mr. Augustine's eyes were glistening with unshed tears.

What each brought to the table

Martin Marietta Corp.

Employees: 93,000

1994 sales: $9.87 billion

1994 profits: $635.6 million

Backlog: $16.6 billion as of 12/31/94

Shares outstanding: 96.1 million

Major programs: Production of the Titan and Atlas families of rockets for launching satellites; LANTIRN night vision systems for fighter planes; communication and weather satellites, external fuel tanks for the space shuttle, Hellfire II laser-guided missile and the Patroit missile defense system. It also operates the Department of Energy's Sandia National Laboratories.

Lockheed Corp.

Employees: 82,500

1994 sales: $13.1 billion

1994 profits: $445 million

Backlog: $25.6 billion as of 12/31/94

Shares outstanding: 63.2 million

Major programs: Production of the F-16 fighter plane and the C-130 military cargo plane and is developing the new Stealth F-22 fighter plane. Production of the Trident II submarine-launched missile; Milstar communication satellites for the military and development of the Theater High Altitude Area Defense (Thaad) missile defense system.

Copyright © 2019, The Baltimore Sun, a Baltimore Sun Media Group publication | Place an Ad
30°