Foreign Payments by Titan Come Under Scrutiny

U.S. regulators are investigating the legality of payments made by Titan Corp. to foreign consultants involved in the sale of the San Diego-based company’s radio systems to foreign military and security services.

News of the probe sent Titan’s stock down $1.31, or 6%, to $20.49 on the New York Stock Exchange on concern that it could delay the company’s $1.8-billion merger with Lockheed Martin Corp., set to close March 31.

Titan and Lockheed jointly brought the matter to the attention of the Department of Justice and the Securities and Exchange Commission earlier this week after an internal review of Titan’s foreign operations by Lockheed raised red flags.

However, Titan spokesman Wil Williams said the company didn’t know whether any of the payments were unlawful, but thought it would be prudent to disclose the review to regulators because of the pending merger.

“Neither Lockheed nor us have found anything wrong,” he said. “We still believe the merger will be completed in March.”

Lockheed, the largest U.S. defense contractor, routinely reviews the policies and procedures of a company it is acquiring to make sure it is in compliance with a range of regulations and laws, said Tom Jurkowsky, a spokesman for Bethesda, Md.-based Lockheed.

“During the course of that process we noticed that Titan had contracts in countries that historically have been associated with international consultant payments and we know there have been problems in some of these countries,” Jurkowsky said. “When we saw that, we told Titan that we said we need to do a review here. The time to do this is now, not after we close the deal.”

Both Jurkowsky and Williams declined to name specific countries or consultants.

Foreign payments are a particularly sensitive area for Lockheed, which in 1995 paid one of the biggest penalties ever -- $24.8 million -- for violating the U.S. Foreign Corrupt Practices Act after an executive was found to have bribed an Egyptian politician to win a contract. The law arose from an earlier Lockheed bribery scandal.

“The job of due diligence is to turn over all the rocks and see what comes out,” said Eric Hugel, an analyst with Stephens Inc. in New York. “The last thing Lockheed would want is a year from now for this to pop up and the headlines to say Lockheed Martin made illegal payments. So they are saying let’s figure out what happened now and deal with it accordingly.”

The probe might delay the merger but “unless something outrageous is found” was unlikely to scuttle it, Hugel added.

Less than 2% of Titan’s business involves international sales of products.

Titan’s overseas operations have come under fire for its use of contractors to fill jobs for the military. The company provides thousands of translators to the military in Iraq and at least 13 employees have died there since July. Titan has about 12,000 employees and the company is expected to report 2003 revenue of nearly $1.8 billion.

Lockheed Martin reached a cash-and-stock deal to purchase Titan for $22 a share in September. Its shares rose 8 cents to $49.40 on the New York Stock Exchange Friday.