L-3 Communications

L-3’s origins were in a company called Loral Corp., which rose from obscurity beginning in the late 1980s with a string of acquisitions such as Goodyear Aerospace, Ford Aerospace, the missile business of LTV and the Federal Systems unit of IBM. Run by Bernard L. Schwartz, Loral was gobbling up military contracting businesses at a time when many companies were leaving the field, which was becoming increasingly controlled by a handful of huge players. In January 1996, the largest of those players, Lockheed Martin, made a bid worth more than $10 billion for most of Loral.

The following year, Frank Lanza, a Loral executive who became Lockheed’s head of defense electronics after the merger, persuaded Lockheed Chairman Augustine to spin off a group of ten communications technology businesses into a new company Lanza would head. That company took the name L-3 Communications, the L’s being a reference to Lanza, president Robert LaPenta and the investment bank Lehman Brothers, which was a major investor in the venture.

L-3, which went public in 1998, pursued a strategy similar to the one that had been employed by Loral—growth through the purchase of divisions being shed by major military contractors and struggling independents. Though these acquisitions were each of modest size, the volume of the deals helped L-3 grow rapidly.

Starting in 2002, L-3 became more ambitious. In January of that year it announced its first 10-figure deal—the $1.1 billion purchase of the Raytheon’s Aircraft Integration Systems business. Then, in June 2005, L-3 announced plans to acquire Titan Corp., a $2 billion purchase that would give it an entrée into private intelligence work as well as federal information technology contracting. Yet it also tied L-3 to the controversy over the role of Titan translators in the mistreatment of prisoners at the Abu Ghraib prison in Iraq. Titan was originally going to merge into Lockheed Martin, but a foreign bribery scandal prompted Lockheed to terminate the deal. As a result of the merger, L-3 became one of the top ten largest federal prime contractors.

After CEO Frank Lanza died in 2006, there was speculation that L-3 would be gobbled up by one of the larger military contracting giants. The company avoided that fate and also avoided criminal prosecution in connection with its admission of backdating stock options. Yet L-3 suffered a significant setback when the U.S. Army, apparently reacting to the controversy over Titan’s role at Abu Ghraib, rejected the company’s bid on a $4.6 billion contract to provide translators in Iraq, awarding it to DynCorp International instead. In late 2007, however, a federal judge dismissed a civil lawsuit against Titan brought on behalf of Abu Ghraib detainees.