All...here is a release form CNN-fn. It looks like LMT is going to buy 49% of CQ regardless of what congress does at $45.5. I think you have a pretty good bet with CQ at 34 3/8 of making 33% in the nest 6 to 9 months. However, I would watch LMT stock price real closely to get a feel if their shareholders like the merger as well, since LMT shareholders will have to approve the first part of the deal. Based on the risk/reward scenario, as I currently understand it, I went long CQ today at 35 1/4 and believe it should be trading closer to $39 to $41 since in the long run it is a good deal for all parties involved.
Lets start discussing the pro and cons of this deal from an LMT and CQ perspective. The more information the better.
thanks,
Rory
Lockheed buying Comsat
But $2.7B merger requires approval of
Congress, adding risk to deal
September 21, 1998: 2:42 p.m. ET
Lockheed meets
2Q expectations -
July 21, 1998
Lockheed calls
off Northrop
merger - July 16,
1998
Lockheed Martin
Comsat
NEW YORK (CNNfn) - Aerospace giant
Lockheed Martin Corp., looking to build a
presence in the burgeoning global
telecommunications market, said it has agreed to
acquire Comsat Corp. in a two-part, $2.7 billion
deal.
But the merger, which the companies
announced Sunday, will require a new law before
it can be completed.
On completion of the merger, Comsat will
become a unit of the Lockheed Martin Global
Telecommunications subsidiary. The deal would
boost Lockheed's presence in the global
telecommunications market and provide it with
the ability to move data, video and voice through
satellite networks.
John Sponyoe, Lockheed Martin chief
executive officer, said the acquisition helps put the
company at the forefront of a market that is
expected to reach $120 billion by 2002.
"Our combined space-based infrastructure will
enable us to deliver uniform global coverage and
capabilities for Internet and network service
providers, broadcasters and multinational
corporations," Sponyoe said.
Glenn Stewart, an aerospace analyst at A.G.
Edwards, said the deal makes sense for
Lockheed given the changing landscape of the
defense industry, even though he believes the
acquisition likely will be "mildly dilutive" to
Lockheed's earnings for the next 18 months.
"You have to look back to the late 80s when
the defense budget started its decline," he said.
"Defense executives have now started to realize
they need to focus on using their defense
expertise in commercial applications, and the area
the shows the most growth is commercial
satellites."
Lockheed (LMT) shares fell 6 to 94 in midday
trading. Comsat (CQ) shares climbed 1-1/16 to
35-3/16.
New rules needed
In the deal's first phase, to be completed
within five business days, Lockheed will offer to
purchase up to 49 percent of Comsat stock at
$45.50 a share, a 33-percent premium over
Comsat's Friday closing price of 34-1/8, for a
value of $1.3 billion. The first phase will require
approval by Comsat shareholders, the Federal
Communications Commission and U.S. antitrust
agencies.
In the second phase, Lockheed will exchange
one of its shares for each two Comsat shares.
The stock swap is valued at $1.4 billion.
The second phase, however, will involve
enactment of pending federal legislation. Comsat
was established by Congress in 1962 as the
country's representative for the international
Intelsat system, which provided satellite
communications around the world.
Congress formed the company to keep AT&T
from extending its telephone monopoly to global
satellite communications.
Since then, competition from other satellite
systems and fiber-optic carriers has emerged, and
Congress has been moving to cut the remaining
strings with Comsat and send it out on its own.
In May, the House of Representatives
overwhelmingly passed a bill by Commerce
Committee Chairman Thomas Bliley to privatize
Comsat.
If enacted, the bill would eliminate the cap on
ownership that prevents companies from
acquiring more than 49 percent of Comsat
because it is a common carrier of communications
services.
Comsat, however, has opposed the bill
because it also would permit competitors and
customers direct access to the Intelsat system
without going through Comsat, as they do now.
Lockheed said it plans to complete the first
step of the transaction regardless of whether the
legislation passes.
This is Lockheed's first big acquisition since its
failed proposed merger with rival U.S. defense
contractor Northrop Grumman Corp. (NOC),
which collapsed under pressure from Pentagon
and Justice Department opposition on antitrust
grounds.
Stewart of A.G. Edwards said the need for
Congressional approval also casts a cloud of
regulatory doubt over the Comsat deal.
"There are two bills currently in Congress
being debated," he said. "It's not perceived until
the end of 1999 that these bills may come to
fruition. If part one goes through (and part two
doesn't), Lockheed will own 49 percent of
Comsat. You are essentially looking at a
company that is taking a risk in a risky business."
Glenn Stewart, A.G. |
