Loral pays dollars 1.5bn for IBM unit

NEW YORK - International Business Machines took another step in its painful year-long restructuring yesterday, selling off its highly profitable US government services division to a leading defence contractor, writes Larry Black.

Loral Corporation, a defence electronics group based in New York, will pay dollars 1.58bn in cash for IBM's Federal Systems division, which has annual revenue of about dollars 2.2bn.

The merger will result in combined annual turnover of dollars 6bn and almost double the value of Loral's order book to about dollars 7bn.

The combination, scheduled for early next year, will increase Loral's total workforce to more than 35,000.

Loral said the two businesses complemented each other well, with minimal overlap, and it had no plans for closures or redundancies.

Federal Systems, which expects to earn about dollars 165m, provides systems integration services to a variety of US government departments and agencies including the US Postal Service and the Federal Aviation Administration. But the Pentagon accounts for about two-thirds of its contracts.

IBM will retain a separate division, known as Federal Systems Marketing, which oversees the sale of standard IBM computer products and services to the US and other governments.