Plea May Be Key to Buyout of Titan

Titan Corp. is weighing a settlement plea with U.S. authorities to clear the way for the San Diego-based defense contractor’s purchase by Lockheed Martin Corp., sources familiar with the matter said Monday.

The pending $1.8-billion acquisition is threatened by probes launched by the Justice Department and the Securities and Exchange Commission over whether Titan made illegal payments to foreign consultants involved in sales of Titan’s radio systems to foreign military and security services.

Lockheed, which agreed to buy Titan in September, is thought reluctant to complete the deal unless Titan can clear itself of potential criminal indictment stemming from the investigations, said sources who asked not to be identified.

The companies also are approaching an April 20 deadline for completing the purchase. Thus, Titan might accept a plea agreement to quickly settle the investigations and allow the deal to proceed, sources said. Titan already has said it set aside $3 million to pay possible fines.

The potential Titan violations of the U.S. Foreign Corrupt Practices Act were uncovered during internal reviews by both companies, which reported their findings to government officials.

But a plea agreement still might not be enough to get the transaction completed, sources said.

Even if a plea is entered, Lockheed Martin, the Bethesda, Md.-based defense giant, might then demand that the terms of its buyout offer be amended to reflect Titan’s fines and any damage Titan suffers to its reputation and its ability to secure government contracts, sources said. Depending on how much Lockheed alters those terms, Titan’s management and stockholders might then have to reconsider approval of the merger. Lockheed also would have to quickly get the revised terms to Titan’s stockholders before April 12, when they are scheduled to vote on the buyout.

Lockheed “needs to make sure it’s completed all the appropriate due diligence before it decides what to do next,” said Howard Rubel, a defense analyst at Schwab Soundview Capital Markets in Old Greenwich, Conn.

“Lockheed has three alternatives: Go forward, renegotiate or kill the deal,” one source said. A Lockheed spokesman declined to comment, as did government spokespeople.

A Titan spokesman did not return a call seeking comment. But one of Titan’s directors, Joseph Caligiuri, told Bloomberg News that Titan’s board was “looking at everything to get this deal done.”

Lockheed is sensitive to the potential for illegal foreign payments. In 1995, the company paid $24.8 million in fines for violating the Foreign Corrupt Practices Act after an executive was found to have bribed an Egyptian politician to win a contract.

With $1.8 billion in revenue last year, Titan and its 11,500 employees mainly provide computer-based information systems for the Pentagon, the Department of Homeland Security and other government agencies. The company also sells sophisticated electronics products. Only 2% of Titan’s revenue comes from its international business.

Titan’s stock fell 43 cents to $19.73 a share Monday, while Lockheed Martin rose 41 cents to $44.51, both on the New York Stock Exchange.

Titan made potentially improper payments totaling millions of dollars while competing for contracts in Africa, the Middle East and Asia, The Wall Street Journal reported Monday, citing a personal familiar with the inquiry. The discovery has led to the suspension of a mid-level employee at one of Titan’s units, it said.