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NOW IT'S LOCKHEED MARTIN Shareholders approve merger of two firms


CHICAGO -- Maryland became home to the world's largest defense contractor yesterday as shareholders of Martin Marietta Corp. and Lockheed Corp. voted overwhelmingly to merge the two industry giants.

The new company -- Lockheed Martin Corp. -- will be based in Bethesda, generate $23.5 billion in annual sales and employ about 175,000 workers, including 4,400 in Maryland.

In simultaneous meetings in downtown Chicago, the $10 billion deal was approved by 87 percent of Martin Marietta shareholders who voted and 95 percent of Lockheed investors.

There were no surprises, but there also were few answers in the culmination of the industry's largest deal ever, nearly a year in the making.

Anxious employees at Martin Marietta's Middle River plant and elsewhere still do not know how many jobs will be axed or which operations will be closed as a result of the merger.

"That's why people here are not sleeping well at nights," Donald Carson, a spokesman for the Middle River plant, said in an interview.

One of the few details disclosed yesterday was that about 100 jobs will be shifted to Bethesda from Lockheed's Calabasas, Calif., headquarters. That will mean some expansion in Montgomery County, but officials indicated that Maryland operations may not be spared from the chopping block.

"Maryland . . . has more capacity than we need," said Norman R. Augustine, president of Lockheed Martin. "Maryland, like everywhere else, is on equal footing."

Job cuts and plant closings will be announced on or before June 30, officials said.

"We realize the uncertainty is difficult," Mr. Augustine said. "One thing that . . . I can promise is, employees will know as soon as we do."

The assurance hardly quelled employee concerns.

"Hell, they can only shoot me, they can't eat me," George J. Bullock, a union official representing 5,000 Lockheed machinists in Marietta, Ga., said during Lockheed's shareholder meeting. "We're living under the enigma that the guillotine will fall at any time."

Job cuts are inevitable, but Daniel M. Tellep, the company's chairman and CEO, said that "had we done nothing . . . there would have been work force reductions in any event."

Shareholders also raised questions about Martin Marietta's compensation plan. The merger awards top management $82.5 million in incentives. Of that amount, $33 million is compensation to 460 executives, a windfall triggered directly by the merger; the rest is accelerated deferred compensation and pension benefits.

Echoing other stockholders, John D. Knauff, a Martin Marietta union official in Piketon, Ohio, challenged the deal, asking how management could be objective in approving the merger with such a large personal stake involved.

Mr. Augustine, until now chairman and CEO of Bethesda-based Martin Marietta, defended the compensation as a contractual commitment. But if he could have done it all over, Mr. Augustine said, he would have limited the incentive payments to executives who lose their jobs in a merger or takeover.

Nevertheless, the new company also proposed performance-based compensation and other benefits to new executives and directors. Shareholders were ambivalent but approved the measure, anticipating that the merger will create a stronger company.

Lockheed Martin, which trumpeted its creation in full-page newspaper ads yesterday, will control as much as 20 percent of U.S. defense spending, creating a more competitive company in a shrinking defense industry.

Lockheed Martin will be organized around four major business sectors: space and missiles; aeronautics; electronics; and information and technology services.

The new company, which is developing the F-22 stealth fighter and manufacturing Titan rockets and military cargo planes, is expected to save the Pentagon between $2 billion and $3 billion over the next five years because savings from consolidation will be passed on to the government.

The merger will cost Lockheed Martin about $850 million in expenses -- mainly costs associated with severance packages and consolidating units -- but the company projects even greater savings through consolidation and cuts.

"The new company will have the critical mass necessary to be a formidable competitor in going after any future business," said Paul H. Nisbit, president of JSA Research in Newport, R.I.

Based on sales, the new company will be nearly double the size of Baltimore Gas and Electric Co., Black & Decker Corp., Giant Food and McCormick & Co., combined. Total employment will equal the population of Little Rock, Ark.

The combined forces of Martin Marietta and Lockheed will generate about $5 billion in cash flow over the next five years.

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