By Andrea Shalal
WASHINGTON (Reuters) - Lockheed Martin Corp said Monday it would buy Sikorsky Aircraft, the helicopter unit of United Technologies Corp, for $9 billion, and would review the possible sale or spinoff of $6 billion in other information technology and services businesses.
The Pentagon's largest supplier said the net cost of the Sikorsky deal was around $7.1 billion, taking into account tax benefits resulting from the transaction. Lockheed also reported higher earnings and revenue for the second quarter.
The deal, first reported by Reuters on Sunday, cements Lockheed's dominance in weapons making and opens key foreign markets for the company, 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 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 Martin Marietta Corp for about $10 billion two decades ago. It marks the first major strategic move for both United Tech Chief Executive Officer Greg Hayes, who was elevated to CEO from finance chief in November, and Lockheed CEO Marillyn Hewson, who took her job in January 2013.
Lockheed shares were trading 1.3 percent higher at $203.76 around mid-morning on the New York Stock Exchange. United Technologies shares were trading about 0.64 lower at $110.09.
"Sikorsky is a natural fit for Lockheed Martin and complements our broad portfolio of world-class aerospace and defense products and technologies," Hewson said in a statement.
Lockheed, which makes F-35 fighter jets, naval ships and government satellites, said the purchase would not impact its commitment to return cash to shareholders through dividends and to reduce outstanding share count to below 300 million shares by the end of 2017.
It said it repurchased 4.9 million shares for $937 million in the quarter, up from 0.8 million shares for $124 million in the year earlier period.
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.
Industry executives do not expect antitrust objections since Lockheed does not build helicopters. They said Lockheed's announcement about potentially shedding its services business could help alleviate concerns about its expanded scale.
Byron Callan, analyst with Capital Alpha Securities, said the company had some hard work ahead to integrate Sikorsky and find ways to cut costs given current malaise in the commercial helicopter business.
Lockheed is also bracing for a key Air Force decision in coming months on a next-generation bomber, a competition in which Lockheed teamed with Boeing to vie against Northrop. The U.S. Army is also due to decide soon which company will build a replacement for tens of thousands of Humvee vehicles.
Lockheed, advised on the acquisition by Credit Suisse, said it would align Sikorsky under its mission systems and training business, which had already worked closely with Sikorsky on several helicopter programs, including a new helicopter being developed to transport the U.S. president.
The company expects to close the transaction by late in the fourth quarter of this year, or early in 2016, depending on regulatory approvals.
It also 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, units with about 17,000 employees.
The company said it would retain services businesses focused on defense and intelligence customers.
UTC said proceeds from the Sikorsky sale would fund more share buybacks to offset the earnings impact from the departure of the unit. Its board authorized a share buyback of up to 75 million shares, which would be worth about $8.3 billion based on Friday's closing price, the company said.
"Exiting the helicopter business will allow UTC to better focus on providing high-technology systems and services to the aerospace and building industries and to deliver improved and sustained value to our customers and shareowners," UTC Chief Executive Greg Hayes said in a statement.
(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)
