Lockheed Martin separating unit, combining it with Leidos

The shares then trimmed the decline, decreasing 1.2 percent to $208.43 at 2:31 p.m.in NY.

The $5 billion transaction includes a one-time $1.8 cash payment to Lockheed Martin, which the company says it plans to use to repay debt, pay dividends, and repurchase its stock.

The deal is subject to regulatory and Leidos shareholders approvals, but analysts and industry executives do not expect any significant hurdles.

Leidos fell 9% on Tuesday, closing at $48.83, with investors looking for more guidance on synergies from the proposed combination, which is expected to close in the second half of the year.

As for Leidos, the deal offers a way to soften the blow of decreased government spending, increased competition, and delays in new contracts.

The stock pared the decline after Lockheed executives assured analysts that earnings are poised to climb after absorbing integration costs for Sikorsky this year. RBC Capital upgraded Lockheed Martin from a sector perform rating to an outperform rating and upped their price objective for the stock from $220.00 to $250.00 in a report on Wednesday, January 6th.

The company has also finalised a deal with Leidos for its information systems and global solutions (IS&GS) business, and predicts upward growth following a two-year budget deal in the United States of America that grows domestic defence spending for the first time since 2012. Visit MarketWatch.com for more information on this news.

For the fourth quarter, Lockheed booked a profit of $933 million, or $3.01 a share, up from $904 million, or $2.82 a share, a year earlier.

Leidos was understood to be planing to merge with the Lockheed division through a Reverse Morris Trust, a transaction that allows a parent company to divest a unit in a tax-efficient manner. Net earnings in 2015 were $3.6 billion, or $11.46 per share, compared to $3.6 billion in 2014.

Wall Street analysts expected Lockheed to post $12.36 billion in fourth quarter revenue and almost $45.53 billion in 2015 sales. Lockheed shareholders will own 50.5% of Reston, Va.-based Leidos, a stake valued at about $3.2 billion.

“I look forward to welcoming the talented employees from IS&GS who will join the Leidos team – they will play a critical role in our future success”, said Roger Krone, Leidos chairman and CEO. The Company provides a range of management, engineering, technical, scientific, logistics and information services.