Seeking cash to help pare long-term debt of nearly $12 billion, Lockheed Martin Corp. said yesterday that it will sell its control systems subsidiary to BAE Systems North America Inc. for $510 million in cash.
The deal is part of an overall streamlining strategy Bethesda-based Lockheed announced in September, when it said it would sell eight of its subsidiaries, bringing in an estimated $1.5 billion.
Lockheed Martin Control Systems, located in Johnson City, N.Y., and Fort Wayne, Ind., makes electronic controls for the commercial and military markets, including aircraft, space and ground transportation systems. It represents less than 2 percent of Lockheed's sales, with revenue last year of $359 million, and profit before interest and tax of $42 million.
"I think everyone agrees that they needed to monetize some of their peripheral assets, and this is one they felt was a noncore business and obviously they're going to be paying down debt with this," said Paul H. Nisbet, an aerospace analyst for JSA Research Inc. in Newport, R.I. "The cost of servicing that debt is close to $1 billion and that, in this period of lower margins, leaves them very little in the way of earnings and little opportunity to pay off debt."
Lockheed made $382 million last year on sales of $25.5 billion, compared with a net income of $1 billion in 1998 and revenue of $26 billion. Its shares closed down 25 cents yesterday at $23.875, nearly 50 percent off its 52-week high of $44.5625 reached in May.
"This proposed transaction is consistent with Lockheed Martin's strategic initiative to focus on the business and technical competencies that will strengthen our position as a leading systems integrator in core aerospace and defense markets," said Vance D. Coffman, Lockheed's chairman and chief executive.
The defense giant has been hurt by delays and cost overruns in a cargo plane program and by a decrease in the number of launches with its Atlas rocket. It has cut about 4,500 jobs over the past two years, and its fighter planes' future in Congress is unclear.
Phil Soucy, a spokesman for BAE in Rockville, said all Control Systems employees will be offered jobs and no layoffs are expected.
"It will be as smooth a transition as possible," he said.