Top U.S. defense contractor Lockheed Martin Corp. Friday postponed its $1.8 billion purchase of information technology specialist Titan Corp. while the government investigates payments by Titan consultants to foreign officials.
The postponement comes a week after Titan disclosed that a U.S. Department of Justice inquiry into the payments had been stepped up to a criminal investigation. Earlier this week Titan lowered previously reported 2003 earnings by $3 million, which it set aside to cover possible costs from the probe.
In morning trading on Friday, Titan shares jumped 3.8 percent, while Lockheed's were off 0.8 percent. Titan's shares took big hits when the issue first emerged last month and again this week on concerns the probe could derail the deal.
But a trader who specializes in stocks of companies involved in takeovers said Friday's postponement news was not seen by investors as a deal breaker.
"The market is viewing this as positive," the arbitrageur, who declined to be named, said. "Lockheed had several options. They could have chosen to let the termination date run out and they could have tried to walk away. Or they could have tried to commence discussions with Titan or sought to reduce the terms of the deal, and we didn't see any indication of that this morning."
In its statement, Lockheed Martin said the special meeting for Titan shareholders to approve the deal has been pushed back to April 12 from March 16. Also, the so-called drop-dead date for completing the deal has been extended to April 20 from March 31.
Lockheed spokesman Jeff Adams said: "We continue to work with Titan to review all relevant information related to Titan's relationship with international consultants."
Adams would not comment or speculate on prospects for changes in the deal's financial terms.
Lockheed, based in Bethesda, Maryland, said in September it would buy Titan for $22 per share as a means to expand its homeland security and intelligence businesses.
San Diego-based Titan provides information-technology services to the government, specializing in command, control, communications and computers, as well as intelligence, surveillance and reconnaissance.
In addition to the Justice Department, the Securities and Exchange Commission is also investigating the payments.
The companies brought the matter to regulators' attention after questions about the payments arose during Lockheed's internal review to ensure compliance with laws on defense contractors and mergers.
When the matter was first made public on Feb. 13, the companies said the probe was focused on a Titan unit that makes radios for hand-held or console use. The unit makes up less than 2 percent of Titan's overall business.