Lockheed Martin [LMT] on Friday after the close of the stock markets quietly disclosed that it had offered to acquire Terran Orbital
[LLAP] for an enterprise value of $606 million, a potential deal the major defense contractor describes as a “strategic priority” in a letter to Terran that was filed with the Securities and Exchange Commission (SEC).
Lockheed Martin said in the SEC filing that it is Terran Orbital’s largest customer–accounting for 81 percent of Terran backlog through December, 2022–and already has a minority stake in Terran after first investing in the manufacturer of small satellites in 2017. For now, Lockheed Martin says it sees no change in this position between the companies.
“As a result, we are uniquely qualified to asses the Company’s near and long-term outlook and accurately ascribe fair value to Terran’s business for all its stakeholders,” Scott Weiner, vice president corporate development for Lockheed Martin, wrote in the March 1 non-binding offer to Jefferies & Co., Terran’s financial adviser.
The offer includes $1 per share for Terran’s 223 million shares of outstanding stock, $313 million to repay Terran’s debt liabilities through Sept. 30, 2023, and $70 million for the company’s outstanding warrants.
Florida-based Terran’s spacecraft have a total mass, including payloads, between 11 pounds and over 2,200 pounds. The company is under contract with Lockheed Martin to provide 78 satellite buses for the Space Development Agency’s Tranche 2 Transport Layer Beta constellation and the agency’s Tranche 1 Transport Layer.
The SEC filing indicates that Lockheed Martin first expressed an interest in acquiring Terran on Feb. 14, and that since then it has been conducting its due diligence with “constructive engagement” from Terran and Jefferies. The due diligence included a “management presentation, site tour,” and other support, Weiner says.
“Terran’s superior capabilities and business momentum align with one of Lockheed Martin Space’s strategic growth priorities and the Transaction would accelerate that strategy,” he says.
Lockheed Martin declined to comment on the strategic rationale for the deal.
Lockheed Martin’s Space segment primarily builds satellites for high-end government missions. The communications satellites based on Terran’s buses it is providing to the SDA are part of the Proliferated Warfighter Space Architecture.
Terran is also under contract with Rivada Space Networks to provide satellite buses for a space-based data network. In late December, Terran received a milestone payment from Rivada. The company said it ended 2023 with $70 million in cash and cash equivalents.
Terran has supported more than 80 missions so far for government and commercial customers. Lockheed Martin’s $1 per share bid represents a 38 percent premium to Terran’s 72 cents per share closing price on Dec. 11, 2023, when it announced it is reviewing strategic alternatives, and an 11 percent premium to the 30-day, 90 cents per share volume-weighted average price as of Feb. 29.
The March 1 letter says that Lockheed Martin’s final proposal is subject to completing its due diligence and negotiating terms with Terran. The deal would be subject to closing conditions.
Last fall, a group of “concerned shareholders” challenged Marc Bell, Terran’s CEO, seeking new leadership, governance changes, and a review of strategic alternatives. The group eventually relented, although Terran agreed to consider a sale of the company.
The disgruntled shareholders, which represent a minority of Terran’s owners, were also upset when they made their concerns public in October 2023 that Terran’s stock price had plummeted from a high of $3.45 per share in the past year to the mid-70 cents range (Defense Daily, Oct. 12, 2023).
The sub-$1 per share trading value does have Terran in danger of being delisted from the New York Stock Exchange soon.
As of August 2023, Terran’s backlog stood at $2.6 billion. The company has a $2.4 billion contract with Rivada for the space-based satellite communications network. Last September, Terran opened a new 60,000 square-foot factory addition in California to meet demand for its satellite buses.