Dynetics Inc., one of Alabama’s top defense contractors, announced it will be acquired for $1.65 billion by Leidos Holdings, a Reston, Virginia-based Fortune 500 company that has been one of the best performing defense stocks of 2019.
First among strategic advantages mentioned by Leidos in its press release on the acquisition was Dynetics’ contribution to work on hypersonic weapons — an area seen as a weakness in U.S. defenses versus those of Russia and China.
Michael Griffin, U.S. undersecretary of defense for research and engineering, said, in February, “In the last year, China has tested more hypersonic weapons than we have in a decade. We’ve got to fix that.”
Big consolidations and big contracts, many in hypersonic weapons, have highlighted the defense industry news in 2019.
Considered the largest contractor in the service sector of the defense industry, Leidos grew to the top in 2016 with the acquisition of Lockheed Martin’s IT division, taking Leidos from $5.1 billion in revenue to $10.8 billion in 2019. A win this year of the $6.5 billion Global Network Management contract — a contract to run the Department of Defense Information Network — contributed to one of the top performances among publicly traded defense stocks in 2019.
Leidos is trading at an historic high of $91.53 per share, 82 percent higher than its price 10 years ago. It has outperformed the S&P 500 since mid-2011.
Dynetics is the largest privately owned aerospace company in Alabama. Since its founding in 1974, Dynetics has operated an employee stock owned company.
“Close to 2,000 employees will benefit from the sale of this company,” said Dynetics CEO Dave King, adding that among those employees there will be “a lot of millionaires.”
“This is a big deal,” said King, “creating a lot of wealth for folks here in Huntsville, as 95 percent of our workforce is here.”
Dynetics’ location in Huntsville, in a center of defense contracting, was also cited by Leidos as a strategic factor in the acquisition.
The Dynetics acquisition is expected to contribute to the recent efforts in the Leidos Innovation Center, “including in hypersonics, space solutions, autonomy and advanced sensors,” said Leidos Chairman and CEO Roger Krone. “Rapid prototyping” was another asset he emphasized in the company’s release.
In October, Dynetics became a major contractor with Lockheed Martin for rapid development of a tank-mounted laser weapon expected to be one way of defending against hypersonic missiles. For the $130 million contract to the team of Dynetics and Lockheed Martin, the Army expects the companies to mount a 100 kW laser on the back of a rugged army truck and develop it to the point of successful demonstration by fiscal year 2022.