ITT Exelis looks to sell low-margin services unit-sources

Mon May 7, 2012 7:25pm EDT

* ITT Exelis seeks buyer for Mission Systems assets-sources

* Assets for sale have $1 bln-$1.5 bln in annual revenues

* Proceeds could go to pay down pensions, debt-sources

* Leonard Green looks to sell consulting firm Scitor-sources

By Soyoung Kim

NEW YORK, May 7 (Reuters) - U.S. defense contractor ITT Exelis is seeking a buyer for its division that provides logistics, security and other support for the U.S. military and other government agencies, according to people familiar with the matter.

ITT Exelis -- a defense business that ITT Corp spun off last year -- has hired boutique investment bank Stone Key Partners to advise on a potential sale of its lower-margin services assets, which have annual sales in the $1 billion to $1.5 billion range, the people said.

The assets being considered for sale are under ITT Exelis' Mission Systems division, one of the company's four segments and which had 2010 revenue of $1.52 billion -- or roughly a quarter of the company's total revenues -- they said.

The division provides maintenance, facilities support, engineering, logistics and security operations for military and government customers in some 20 countries around the world, including Afghanistan.

The business has operating margins that are lower than double-digit or high single-digit operating margins in ITT Exelis' core defense electronics and product-oriented divisions.

An ITT Exelis spokesman said the company's policy is not to comment on any corporate development activities. Stone Key representatives were not available for comment.

The company could use the proceeds from a sale to fund its pension obligations or pay down debt, or to make acquisitions to complement its more profitable defense electronics and product businesses, the sources said.

SCITOR FOR SALE

Separately, private equity firm Leonard Green & Partners LP is looking to sell Scitor Corp, a provider of consulting services for government defense programs, as well as corporate customers, according to the same people familiar with the matter.

The potential sale comes nearly five years after the Los Angeles-based Leonard Green acquired Scitor for an undisclosed amount. While the size of the business is unclear, some of the sources valued Scitor in the range of $600 million to $800 million.

Lazard Ltd is advising on the process and has reached out to potential buyers, the sources said.

Representatives for Leonard Green and Lazard did not respond to requests for comment.

Herndon, Virginia-based Scitor, with a strong presence in the space and classified information services sector, o ffers systems engineering, financial and management consulting, information services and other services for national priority government programs.

It is not clear if the largest defense contractors would be interested in bidding for Scitor, partly because of concerns that the company's government consulting services could create organizational conflicts of interest, some of the sources said.

Many defense companies have long offered advice to government agencies on programs they end up bidding for, creating a conflict of interest. That prompted the U.S. Congress to pass a law that requires the Department of Defense to tighten rules on potential conflicts at such companies.