Pentagon budget cuts were supposed to herald a wave of consolidation in the defense industry. Instead they're prompting contractors to shrink by spinning off divisions.
McLean-based Science Applications International Corp. plans to split into two companies by February, and L-3 Communications Holdings last year spun off a $1.7 billion unit that provides government services. Bethesda's Lockheed Martin and Northrop Grumman of Falls Church also have sold divisions to private investors, as Pentagon spending on contracts declined from its 2009 peak.
Such moves contrast with the wave of mergers during the 1990s, when military spending fell following the Cold War's end. No acquisitions have been announced this year by the top 10 defense contractors.
"When the crystal ball is cloudier than it's ever been, everybody's driving slower,'' Cameron Hamilton, a principal at the McLean Group, a McLean-based investment bank, said in a phone interview.
The Pentagon is absorbing $41 billion in automatic reductions this year under the process known as sequestration. That's contributing to the largest single-year decline in the defense budget since 1955, according to a report published this month by Todd Harrison, a budget analyst with the nonpartisan Center for Strategic and Budgetary Assessments in Washington/.../