Lockheed/Northrop deal would produce IT giant

Many industry observers believe Lockheed Martin Corp.'s pending $8 billion acquisition of Northrop Grumman Corp. will have the greatest impact on the Defense electronics sector. Yet the combined companies would command a $4 billion chunk of the federal information technology market.

Lockheed Martin's plans to purchase Northrop Grumman announced July 3 marks the latest push in Defense consolidation. A successful pairing would leave the industry with three main competitors: Lockheed/Northrop Boeing Co. and Raytheon Co. The combination however will be scrutinized by federal regulators. Either the Federal Trade Commission or the Justice Department will review the deal for potential anti-trust violations. The Pentagon also will "review it very carefully " according to a Defense Department spokesman who added that the process could take months.

The IT industry's first take on Lockheed/Northrop is that the deal has more to do with Defense electronics than mainstream computing and communications. "It will have a great deal more impact on the Defense piece of it " said Norm Berthaut a vice president with Input Inc. Vienna Va.

"This is not going to have much of an impact on federal IT " added an integration executive who requested anonymity.

Others are not as certain however. An executive at a midtier integrator said he was concerned that consolidation will force IT companies to subcontract to one of the big three Defense/aerospace firms. "We are going to become subs to Lockheed instead of [to] DOD " the executive said.

Everyone seems to agree however that Lockheed Martin's pending purchase of Northrop Grumman is a case of the big getting bigger in federal IT. Lockheed Martin which topped FCW's recent ranking of federal integrators generated $3.6 billion in revenue in the federal IT arena during 1996. Northrop Grumman's Data Systems and Services Division produced about $350 million in federal IT business.

Lockheed Martin's purchase of Northrop Grumman would thus forge a $3.95 billion federal IT entity. That total will grow if Northrop Grumman completes the acquisition of Logicon Inc. Logicon would contribute an additional $350 million in federal IT revenue.

Lockheed Martin's acquisition of Northrop Grumman would strengthen the resulting company across the board including IT Berthaut said. A Lockheed Martin press release cited the ability to "expand critical mass" in such areas as information systems as a key to the pending acquisition. Lockheed Martin and Northrop Grumman officials were unavailable for additional comment.

From a federal contracts perspective Northrop Grumman would help Lockheed Martin shore up its presence at the Treasury Department.

Northrop Grumman is the prime contractor on the Internal Revenue Service's $87.7 million Service Center Recognition/Image Processing System. Lockheed Martin meanwhile had its $1.3 billion Document Processing System scrubbed by the IRS.

In addition Northrop Grumman has been gearing up to bid an IRS systems integration contract to help manage the Tax Systems Modernization plan.The combined company's top management team would consist of Lockheed Martin chairman Norman Augustine and two vice chairmen.

Vance Coffman currently Lockheed Martin's president and chief operating officer will become vice chairman and chief executive officer upon Augustine's Aug. 1 retirement as CEO. Kent Kresa the chairman CEO and president of Northrop Grumman also is slated to become a vice chairman.

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