Lockheed Martin (LMT) said on Tuesday it reached a deal to combine its information systems and government services business with Leidos Holdings Inc (LDOS), and reported higher-than-expected quarterly profit and revenue.

Lockheed would receive a one-time payment of $1.8 billion from Leidos and own a 50.5% equity stake in the company valued at $3.2 billion.

The $5 billion deal would create the largest government services provider in the United States, giving Leidos the critical mass to cope with lower government spending, increased competition and delays in new contracts, the companies said.

Lockheed, the Pentagon’s No. 1 supplier, also reported net profit rose to $933 million, or $3.01 per share, in the quarter, from $904 million, or $2.82, in the year-earlier period. It also had a record backlog of $99.6 billion, including $15.6 billion contributed by Sikorsky Aircraft, the helicopter maker acquired from United Technologies Corp last year.

Revenues edged higher to $12.9 billion from $12.5 billion a year earlier.

Analysts estimated quarterly earnings per share of $2.94 on $12.36 billion in revenues, according to a poll by Thomson Reuters I/B/E/S.

Lockheed reported nearly flat net profit of $3.6 billion for full-year 2015, or $11.46 per share, on revenue of $46.1 billion.

It forecast 2016 revenues rising to a range of $49.5 billion to $51 billion, and earnings per share at $11.45 to $11.75.

Lockheed Chief Executive Officer Marillyn Hewson said the Leidos deal would allow Lockheed to focus on its core businesses of aerospace and defense. The company builds the F-35 fighter jet, satellites, missile defense equipment and smaller warships.

The deal is subject to regulatory and Leidos shareholders approvals, but analysts and industry executives do not expect any significant hurdles.

Lockheed said the deal was planned as a tax-efficient split-off transaction, which would result in a decrease in Lockheed’s share count. It expects to close the deal in the third or fourth quarter of 2016.

Leidos said its chief executive and chairman, Roger Krone, would remain in those jobs as would Chief Financial Officer Jim Reagan. Lockheed would designate three directors to serve on the Leidos board, it said.