By Dana Mattioli, Ted Mann and Doug Cameron
Lockheed Martin Corp. is in advanced talks to buy the Sikorsky
helicopter unit from United Technologies Corp., in a deal that
could be valued at more than $8 billion.
An agreement between Lockheed and United Technologies could be
reached in the coming days, according to people familiar with the
matter--assuming the talks don't unravel.
At a price of $8 billion or more, a purchase of Sikorsky
Aircraft Corp. would be Lockheed's largest since it bought Martin
Marietta Corp. for roughly $10 billion some 20 years ago, according
to S&P Capital IQ.
Sikorsky, best known for its Black Hawk choppers, is one of the
world's largest helicopter makers. It manufactures military and
commercial helicopters and is the Pentagon's largest rotorcraft
supplier by value. Sikorsky also has an aftermarket business that
sells parts and maintenance contracts.
In March, United Technologies said it would explore strategic
alternatives for the business, including a potential spinoff.
The proposed purchase of the world's largest military helicopter
maker could provide a growth engine for Lockheed, whose revenues
have remained essentially flat over the past five years as Pentagon
budget cuts have only been partially offset by expanding export
sales.
Sikorsky faces some strong headwinds itself, including the
wind-down of the Iraq and Afghanistan wars, which have pressured
the military side of its business. The collapse in crude-oil prices
has also cut demand for helicopters used to ferry workers to and
from offshore oil facilities. Nonmilitary sales account for 30% of
revenues.
There are prospects for long-term growth, however. Sikorsky
boasts a $40 billion backlog, and won several key U.S. military
contracts in the past year, including a deal to supply the
next-generation presidential helicopter and a rescue chopper for
the Air Force. Both of those contracts were won in partnership with
Lockheed.
Sikorsky was started in 1925 by Igor Sikorsky on New York's Long
Island. With $7.5 billion in sales last year, it is United
Technologies' smallest division by revenue. Analysts forecast
Sikorsky sales will dip slightly this year, but the company aims to
boost that to $10 billion by 2025. The energy slowdown and the loss
of a potential military contract from Poland led Sikorsky to
announce plans in early June to cut 5.5% of its 15,000-strong staff
and 560 contract jobs over the next year.
In addition to Sikorsky, United Technologies makes Otis
elevators, Pratt & Whitney jet engines and Carrier
air-conditioning units. After the planned divestiture of the
business was announced, taxes became a sticking point for some
suitors, according to some of the people familiar with the
matter.
The corporate predecessor to United Technologies bought Sikorsky
in 1929, and a sale could attract an estimated $3 billion tax bill
for the company, which a buyer would effectively have to bear.
Other bidders for the business included Boeing Co. and Textron
Inc., the people said. Sikorsky said it accounts for 65% of the
Pentagon's expected future helicopter spending, and antitrust
concerns led analysts to discount a purchase by Boeing, which has a
quarter of the market.
A deal could upend existing partnerships in the industry.
Sikorsky is teamed with Boeing in the development of a future new
family of helicopters for the Army, while Lockheed is partnered
with the Bell unit of Textron.
The transaction would mark a strategic shift for Lockheed toward
the design and construction of military helicopters, as opposed to
providing parts such as communications and weapons systems.
Lockheed has in recent years signaled it would become more of a
so-called platform builder, for example by designing its own Army
truck as part of a three-way contest expected to be decided next
month. The Bethesda, Md., company is the world's largest defense
company and has a market value of about $60 billion.
Lockheed Chief Executive Marillyn Hewson has focused on boosting
productivity and shareholder returns since taking over in 2013,
with acquisitions limited to a parade of small, bolt-on deals in
areas such as cybersecurity and commercial aerospace.
She hasn't ruled out larger deals in its main business segments,
however. "They're in the core defense market," Ms. Hewson said at a
recent investor conference when asked about potential interest in
Sikorsky.
Write to Dana Mattioli at dana.mattioli@wsj.com and Ted Mann at
ted.mann@wsj.com
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