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US: Opens Probe Into Contractor Titan Corp.

by Renae Merle Washington Post
March 6th, 2004

The Justice Department has opened a criminal investigation into whether San Diego defense contractor Titan Corp. made illegal payments to international consultants, endangering Lockheed Martin Corp.'s plan to buy the firm.

 

Bethesda-based Lockheed late yesterday said its ongoing review of Titan's operations had unearthed "allegations that improper payments were made," and that it alerted the Justice Department to those findings. The Foreign Corrupt Practices Act prohibits U.S. corporations or their agents from bribing foreign officials to win business.

 

Lockheed spokesman Tom Jurkowsky would not say whether the company had found specific evidence of bribes. The Securities and Exchange Commission began investigating Titan last month, after Lockheed alerted the agency that it found Titan has contracts with countries known for accepting bribes. Lockheed is also reviewing Titan's books to determine whether payments to consultants were properly recorded.

 

"These are allegations; not evidence of wrongdoing," said Wil Williams, a Titan spokesman.

 

Neither company would say which countries were involved in the possible payments.

 

Titan's international contracts consist mostly of deals for military radios , a spokesman has said. Titan says that less than 2 percent of its $1.8 billion in revenue last year came from overseas sales.

 

The $2.4 billion acquisition of Titan is designed to push Lockheed further into the government information technology market by expanding its contracts with intelligence agencies. Most of Titan's 12,000 employees have security clearances.

 

When the issue of potential bribery emerged last month, Lockheed said it had found no evidence of wrongdoing and that it would push aggressively to close the deal by March 16, when Titan shareholders are scheduled to vote. But in a carefully worded statement late yesterday, Lockheed said if the ongoing investigations were not completed by that date it "will need to determine whether the conditions to the merger have been satisfied."

 

The merger agreement requires the deal to close by the end of the month. If it cannot close by then, either side can terminate the agreement, Lockheed said in a prepared statement.

 

Williams, the Titan spokesman, said only: "Both parties are still working to complete the merger by March 16, and we still expect the shareholder vote as scheduled."

 

The development raises the probability that Lockheed will delay closing on the deal, said Robert Rubin, vice president of investment bank Aronson Capital Partners, LLP. "Given the current environment. . . . I am sure Lockheed is going to take all the time they need to make sure this isn't an issue," he said. "Whether that means the end of the deal or not, we'll have to wait and see. But Lockheed is going to be very cautious."

 

In the past, a number of defense contractors had been accused of paying bribes, but most have stayed clear of such situations in recent years, Rubin said. "They're just not the kind of issues you want to be on the wrong side of," he said.

 

In 1995, Lockheed pleaded guilty to conspiring to bribe an Egyptian politician for help in securing a contract for three C-130H cargo jets.

 

Lockheed is offering Titan shareholders $22 in cash per share, an equivalent amount of Lockheed stock, or a combination. Lockheed also would assume $580 million in Titan debt. Titan stock closed at $20.93 a share yesterday, down 4 cents, before Lockheed announced the Justice Department investigation.





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