Lockheed Creates ESOP to Preempt Simmons Takeover
Lockheed Corp., acting swiftly to preempt a takeover by investor Harold Simmons, said today that it will sell some units, boost its dividend and create a stock ownership plan that puts 17% of its shares in employee hands.
At the same time, the Calabasas-based defense and aerospace company said it expects profits to decline 40% in the first quarter and 25% in the year as a whole. A lackluster earnings performance has been cited by analysts as a key factor making the company vulnerable to a takeover.
Reacting to the new anti-takeover measures and the outlook for lower earnings, Lockheed’s shares opened 87.5 cents lower at $48.875 today.
Simmons, a wealthy Dallas financier, said Monday that a group he heads has acquired 5.3% of Lockheed and will consider taking control. Lockheed’s shares Monday jumped to a sharp gain on takeover speculation, even though Simmons said he has no immediate plans for a buyout.
Like Polaroid’s Defense
The maker of such top-secret defense weapons as the stealth bomber and the Trident missile, Lockheed began preparing a takeover defense in December when Simmons first said he was buying Lockheed shares.
In the employee stock ownership plan announced today, the company will create an ESOP with a combined value of about $1 billion by creating 10.5 million new shares and acquiring 10.5 million existing shares.
The celebrated takeover defense by Polaroid Corp. against Roy Disney’s Shamrock Holdings Inc. successfully employed such a plan and many companies are adopting them.
In another measure that will reduce its vulnerability, Lockheed said, it will phase out its Information Systems Group, selling its CalComp, CADAM, Metier and Lockheed DataPlan units. Analysts have said the information group could be sold off by a corporate raider to fund part of a buyout. The four units had 1988 revenues of $589 million, out of the company’s total of $10.59 billion.
Lockheed said the moves renew its focus on missiles and space, aircraft and electronics, and place new emphasis on technology services.
“They will enhance our competitiveness in a rapidly changing environment where premiums are placed on innovation, efficiency and quality and focused management,” said Lockheed Chairman Daniel M. Tellep.
But on another front that analysts see as vital to winning any takeover battle, the company will find no immediate relief. It said first-quarter profits will be hurt by the end of its C-5B military transport production program, higher effective tax rates and expected adjustments for cost increases in certain aircraft modification programs.
That will slash Lockheed’s earnings 40% from the $114 million in the first quarter last year. Earnings for the year as a whole will be only slightly better than the first quarter, and are expected to be down 25% from the $624 million in 1988.
Despite the short-term setbacks, Lockheed said it is confident that earnings growth will resume in 1990 and beyond.
