Check out L-3 Communications (NYSE:LLL). They are in the middle of executing a publicly traded spin-off called Engility. Since L-3 considers itself a 1st-tier defense contractor and has an investment grade rating, it will spin-off a subsidiary that is to be a 2nd/3rd tier company. Therefore the new spin-off will carry a debt rating equivalent to a BB+ enterprise. A lot of debt & goodwill will be transferred to the resultant subsidiary.
In contrast, the parent company will retain all the revenues, dividends and cash-flow. It will reduce capital expenditures, and possibly R&D. Long term debt will be spun-off as L-3 will maintain its excellent credit ratings. The margins are expected to grow in the parent company and decrease in the spin-off. However, the synergies and cost savings are expected to help both companies. How will all the re-alignments of business units wash-out?
L-3 Annual meeting is April 24th. If everything goes according to plan, the deal is to be finished by June 30th, 2012.
Engility website: http://www.engilitycorp.com//news/
Showing posts with label LLL. Show all posts
Showing posts with label LLL. Show all posts
Monday, March 19, 2012
Sunday, March 11, 2012
L-3 and the coming Budget Sequester
L-3 Communications (NYSE:LLL) stands out among pure defense players by virtue of its non-platform focus on shorter-cycle contracts. It has prospered the last few years because of the discretionary non-platform emphasis. Now with the looming defense budget cuts it may work against them.
"In the past the short-cycle business was favorable because of the constant increases in DoD budget; now with declining budget it works against them."
"So far the Pentagon has not actually reduced spending, but it has terminated programs deemed unnecessary or too costly and shifted the funds elsewhere." L-3's pipeline of work is full but usually consist of 3 years or longer contracts cycle so the cuts haven’t been fully realized. A shorter cycle works against L-3.
L-3 has anticipated the budget cuts and debt crisis and has done a lot of adjustments last year; However, the FY 2013 Budget has more cuts as the sequester threat continues. In September, if the budget is not past again, sequester could make the cuts worse.
Budget cuts are in the Defense Department (DoD), but Homeland (DHS) & CIA/Intelligence Agencies monies have increased or remain the same.
Cyber and C3ISR are divisions expected to prosper.
Spin-off to be completed June 30th 2012.
L-3 is a good company in a bad sector.
L-3 is a serial acquirer with BIG goodwill - will probably be written-off next quarter or at spin-off?
p/e=7.52,p/bv=1.02, cash intensive in fixed asset, spin-off to reduce debt?, div increased
not favored by analysts - only 1 buy out 17 brokers in current month
10K - price=68.19, eps=9.07, fair value=201.89, long term potential 195%, bv=67.03
est earnings 1.88 vs 1.85 → eps=9.10, rev will go down, spin-off will break even?, earnings will break even?
"In the past the short-cycle business was favorable because of the constant increases in DoD budget; now with declining budget it works against them."
"So far the Pentagon has not actually reduced spending, but it has terminated programs deemed unnecessary or too costly and shifted the funds elsewhere." L-3's pipeline of work is full but usually consist of 3 years or longer contracts cycle so the cuts haven’t been fully realized. A shorter cycle works against L-3.
L-3 has anticipated the budget cuts and debt crisis and has done a lot of adjustments last year; However, the FY 2013 Budget has more cuts as the sequester threat continues. In September, if the budget is not past again, sequester could make the cuts worse.
Budget cuts are in the Defense Department (DoD), but Homeland (DHS) & CIA/Intelligence Agencies monies have increased or remain the same.
Cyber and C3ISR are divisions expected to prosper.
Spin-off to be completed June 30th 2012.
L-3 is a good company in a bad sector.
L-3 is a serial acquirer with BIG goodwill - will probably be written-off next quarter or at spin-off?
p/e=7.52,p/bv=1.02, cash intensive in fixed asset, spin-off to reduce debt?, div increased
not favored by analysts - only 1 buy out 17 brokers in current month
10K - price=68.19, eps=9.07, fair value=201.89, long term potential 195%, bv=67.03
est earnings 1.88 vs 1.85 → eps=9.10, rev will go down, spin-off will break even?, earnings will break even?
Thursday, March 8, 2012
L-3 spinoff
From the L-3 Communications Holdings (LLL) 10K filed 2/29/2012
On July 28, 2011, the Company announced that its Board of Directors approved a plan to spin-off a new, independent government services company that will be publicly traded. The new public company will be named Engility Holdings, Inc. (Engility). The spin-off, which is intended to be tax-free to L-3 and its shareholders, is expected to be completed in the first half of 2012. Upon completion, L-3 shareholders will own 100% of the shares of both L-3 and Engility. The spin-off is not subject to a shareholder vote.
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