Lockheed to buy ACS fed biz

Lockheed Martin Corp. will buy part of Affiliated Computer Services Inc.'s federal business, and then, in turn, sell part of its commercial information technology business to the Dallas firm.

Lockheed is paying $658 million for ACS's federal side, while ACS will pay $107 million for Lockheed's commercial business.

The twin transactions strengthen ACS's position in the commercial and higher education markets, said chief executive officer Jeff Rich in a statement. "Lockheed Martin is a premier player in the federal market and ACS is a premier player in the commercial market. These transactions build on our respective strengths and enable ACS to maintain our commitment to the higher education marketplace," he said.

The federal government sector accounted for the smallest portion of ACS's total revenues, according to its latest quarterly report. Federal government sales brought in $217.6 million in revenue for the fourth quarter in ACS's fiscal year, which ended June 30. State and local government sales accounted for $463.9 million, and commercial sales $332.7 million.

ACS also reported its lowest profit margin, 7.7 percent, from federal sales, with an operating income of $16.1 million. It netted $79.2 million from state and local government, a 17.1 percent margin, and $58.8 million from commercial customers, a 17.7 percent margin.

The boards of both companies have approved the transactions, but they are still subject to regulatory approvals. The companies expect the sales to close by December.

The Defense Information Systems Agency in July awarded ACS a place on I-ASSURE II, an information assurance contract vehicle that is worth up to $1.5 billion for the 11 contractors who have a stake in it. Now that Lockheed is buying the federal business, the fate of individual contracts will vary, ACS spokesperson Lesley Pool said.

"What would typically happen is you have to reassign or transfer or reprocure or requalify, and it's different on every contract," she said.

It is an unusual time for a company to sell off a federal business, said Larry Allen, executive vice president of the Coalition for Government Procurement.

"Right now you'd think it was a nice core piece of business to have. The federal government is one of the markets that's buying right now," he said.

ACS reported a total of $1.014 billion in revenues for the quarter. That represents an 18 percent increase over the $857 million it reported in the same quarter a year ago. Net profits rose 34 percent, from $229.6 million to $306.8 million.