Leidos disclosed on Tuesday that it is merging with most of Lockheed Martin’s IT unit in a $5 billion deal that will produce a federal services powerhouse. The transaction will contribute significantly to the rationalization of the defense sector, since the resulting combination will be a pure play in high-end technical services, while Lockheed Martin will become mainly a designer, developer and integrator of complex aerospace and electronic systems. Because the financial dynamics of the hardware and services segments of the defense market are so different, both enterprises will be stronger as a result of the transaction. I have written a commentary for Forbes here.
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