Defense conglomerate Lockheed Martin is set to announce it has purchased United Technologies Sikorsky Aircraft for approximately $8 billion, according to knowledgeable sources, Reuters reports. The two firms will make the deal public on Monday before they report second-quarter results on Tuesday, the sources noted.
United Technologies began to explore alternatives for Sikorsky back in the spring. Of note, Sikorsky represented close to $7.5 billion out of UTC revenues of $65 billion in 2014.
When contacted by the media, both firms declined to comment.
More on Sikorsky Aircraft – Lockheed Martin deal
Analysts point out this deal is Lockheed’s biggest acquisition since it snapped up Martin Marietta for $10 billion twenty years ago. This is also the first big decision for recent United Tech CEO Greg Hayes and Lockheed CEO Marillyn Hewson, who took the helm in 2013.
According to according to several sources with knowledge of the negotiations, Textron had also put in a bid for Sikorsky, but moved on when the price tag approached $8 billion..
Keep in mind that Pentagon officials have already said they planned to carefully evaluate any potential sale of Sikorsky Aircraft, as it supplies a large number of military helicopters to the U.S. military, and the department had a responsibility to maintain competition and minimize market distortions.
The law allows the Defense Department to object to a merger involving key suppliers as a part of a federal antitrust review, which will probably be organized by the Justice Department.
Military experts and Wall Street analysts note that it is unlikely that the Defense Department would nix the Lockheed – Sikorsky deal as Lockheed does not build helicopters currently. Specifically, Bernstein notes:
Lockheed’s approach to helicopters has been one in which it would play the system integrator role, but not own the assets tied to the platform itself. The idea here is that the systems work today is where the differentiation takes place.
Some have suggested that the Pentagon will ask Lockheed to make specific guarantees because of its increased scale. Of interest, Lockheed Martin reported over $45 billion in sales in 2014.
The Sikorsky deal will seal Lockheed Martin as the dominant defense contractor, with far more military contract dollars per year than competitors Boeing and Northrop Grumman.
The sources reporting on the deal also note that the company is looking to sell or spin off some of its lower-margin services businesses.