(Reuters) - L-3 Communications Holdings Inc LLL.N is in exclusive talks to sell National Security Solutions (NSS), its government services division, to smaller defense contractor CACI International Inc (CACI.N) for around $550 million, people familiar with the matter said on Friday.
If it strikes a deal, L-3 would be the latest military technology company to shed its less-profitable government consultancy operations in response to lower U.S. military spending.
A deal would help L-3, the Pentagon’s No. 7 prime contractor last year, as it looks to move away from low-margin businesses and focus on the communications and defense electronics markets.
A deal could be announced as early as next week, assuming negotiations are concluded successfully, said the people, who asked not to be identified because the negotiations are confidential.
L-3 declined comment. CACI did not immediately respond to requests for comment.
Shares of L-3 closed up 2.7 percent on Friday at $124.01, while CACI shares rose 1.2 percent to $101.64.
NSS sells a wide range of services to businesses, government and intelligence agencies. Recently, NSS was awarded a contract to provide comprehensive training to Royal Saudi Air Force operations personnel.
Based in Arlington, Virginia, CACI sells information services to national security agencies, the military, and other government departments. It has a market value of about $2.4 billion.
Chris Kubasik, who was previously a president and chief operating officer of Lockheed Martin Corp (LMT.N), joined L-3 as president and chief operating officer in late October.
A successful divestiture of the NSS business would buck a trend of failed sales of similar units, such as BAE Systems Plc’s (BAES.L) attempt to sell its services unit, which was called off after a long effort.
Other large defense contractors have also soured on the struggling government services sector. Lockheed Martin (LMT.N), the Pentagon’s No. 1 supplier, said earlier this year that it plans to sell or spin off information technology and services businesses that generate $6 billion in annual revenue.
CACI is vying for the Lockheed assets and has discussed a so-called Reverse Morris Trust deal, which would avoid a heavy tax bill, sources familiar with the matter said earlier this week. CACI faces competition in that auction from Leidos Holdings Inc (LDOS.N).
Reporting by Mike Stone in Washington and Greg Roumeliotis in New York; Additional reporting by Andrea Shalal in Washington; Editing by Steve Orlofsky and Bill Rigby