Unisys Reportedly Seeking to Sell Defense Unit : * Technology: Sources say the ailing computer firm is trying to work out a deal to raise $500 million to $1 billion.
Unisys Corp., reeling from financial and legal problems, is negotiating to sell its McLean, Va.-based defense division to investors in a deal being put together by the Washington-based Carlyle Group, according to sources.
Under the terms of the proposed transaction, shares in the defense unit would be issued to the public, raising $500 million to $1 billion for the debt-laden parent. Unisys would then concentrate on its core mainframe computer business.
According to sources who asked to remain anonymous, Carlyle would make a significant investment in the new company, and its partners, including former Defense Secretary Frank C. Carlucci, would play a role in managing it.
Sources cautioned that no final decision has been made to proceed with the transaction.
Unisys and Carlyle declined to comment on the negotiations, which could conclude as early as this week. Peter Hynes, a spokesman for the defense division, said the company would not respond to “speculation.” William Conway, a Carlyle partner, declined to comment.
The Carlyle Group, a Washington investment bank, has been seeking purchases in the defense industry, where the price of many companies has fallen since the late 1980s as Pentagon budgets have shrunk.
Last fall, Carlyle purchased McLean-based BDM Corp., a major supplier of computer services, weapons testing and analysis for the Pentagon. Carlyle paid BDM parent Ford Aerospace Corp. $125 million in that deal.
Unisys’ defense division produces customized electronics for a number of weapons and radar systems used by civilian and intelligence agencies as well as the Pentagon. Industry analysts estimate annual division sales at about $2 billion. Much of that revenue is from the Navy, which uses Unisys electronics, radar systems and software on many of its submarines and cruisers. The division employs about 15,000 people around the country, including about 2,500 in the Washington area.
While Unisys’ defense business remains profitable--analysts estimate it earned $100 million to $150 million last year--it is also the target of the Justice Department’s ongoing investigation of Pentagon fraud, known as Ill Wind. The Washington Post and other newspapers have reported that the company is preparing to plead guilty to a number of federal charges stemming from the investigation and has agreed to pay a fine of $195 million.
According to sources familiar with the Carlyle negotiations, one sticking point is finding a way to shield the defense division’s new owners from any legal liability from the fine and the continuing criminal investigation.
Unisys has also reported a $250-million cost overrun on its fixed-price contract to build a new radar system for the National Weather Service. Last week, the weather service agreed to pay an additional $56 million, but any overrun above that would have to be absorbed by the company.
Unisys has been seeking a buyer for its defense division since last March, when it announced a separate board for the division. The company also hired the Wall Street firm Lazard Freres & Co. to explore the possibility of asset sales.
Since then, Unisys’ financial situation has deteriorated in the face of a recession that hit particularly hard in the computer industry. The company reported a $1.3-billion loss in the second quarter of this year. Combined losses for 1989 and 1990 exceeded $1 billion.
Among other companies that explored buying portions of the Unisys defense business were Loral Corp. and Bethesda, Md.-based Martin Marietta Corp., sources said.
