By Mike Stone and Andrea Shalal
(Reuters) - Leidos Holdings Inc (N:LDOS) is nearing a deal to merge with Lockheed Martin Corp's (N:LMT) government information technology and services businesses in a deal that could value these assets at around $5 billion (3.52 billion pound), people familiar with the matter said.
The deal will create the largest government services provider in the United States, putting the combined company on a stronger footing to cope with lower government spending, increased competition and delays in new contracts.
Reston, Virginia-based Leidos submitted an offer earlier this month that prevailed over rival U.S. defence contractor CACI International Inc (N:CACI) and is now in the process of finalising terms with Lockheed, the people said on Tuesday.
Leidos, which has a market capitalisation of close to $4 billion, plans to merge with the Lockheed businesses for sale under a so-called Reverse Morris Trust, a transaction that allows a parent company to divest a unit in a tax-efficient manner, according to the sources.
If the terms of the potential agreement are finalised, Leidos and Lockheed Martin could announce a deal as early as next week, the people added.
The sources asked not to be identified because the negotiations are confidential. Lockheed and Leidos declined to comment, while CACI did not immediately respond to requests for comment.
Shares of Leidos jumped as much as 8.1 percent on the news, while Lockheed shares rose as much as 2.2 percent in New York.
Lockheed, the Pentagon's largest supplier, is looking to pay down debt following its agreement in July to acquire Sikorsky Aircraft, the helicopter unit of United Technologies Corp (N:UTX), for $9 billion in cash.
Earlier on Tuesday, private equity firm Platinum Equity said it had agreed to buy government services contractor PAE from Lindsay Goldberg, another buyout firm.