Hughes Buying General Dynamics Missile Business for Stock
WASHINGTON (AP) _ A General Motors Corp. subsidiary agreed to buy General Dynamics Corp.’s missile business Monday in what some analysts said might be the begining of a new corporate arms race in the post-Cold War economy.
GM’s Hughes Aircraft Co., maker of the TOW anti-tank missile, will pay at least $450 million in stock to acquire General Dynamics’ operations, the companies said.
The move will solidify Hughes’ position as the No. 2 manufacturer of tactical missiles behind Raytheon Co. while relieving General Dynamics of an operation that’s not part of its long-range strategy, analysts say.
″This transaction allows Hughes to strengthen its defense business - particularly in areas where the company can sustain a leadership position - while continuing its diversification into commercial and nondefense businesses,″ C. Michael Armstrong, Hughes’ chairman and chief executive officer, said in a statement.
At General Dynamics’ Fall Church, Va.’s headquarters, spokesman Alvin Spivak said that because of cuts in the nation’s defense budget, the company is returning to its four core military businesses: tactical military aircraft, nuclear submarines, armored vehicles and space-launch systems.
In the wake of the Cold War, missile volume needs are coming down.
″You got two strategies. Some guys are saying: ‘Let’s get out before it comes down too rapidly and these properties aren’t worth anything.’ And you have the big guys saying ’Let’s buy. Let’s make sure we remain No. 1 or No. 2.,″ said Jack Modzelewski, an aerospace analyst with PaineWebber Inc. in New York.
″Hughes is buying $1.2 billion to $1.3 billion of missile sales. They’re going to consolidate a lot of their operations. I think it’s a good deal for Hughes,″ Modzelewski said.
As for General Dynamics, which Modzelewski says has been having a ″garage sale″ to cut costs and raise cash, ″it’s a great strategy on their part. They’re the first ones out. The first person out tends to get the best price.″
Gary Reich, an analyst at Shearson Lehman Brothers Inc. in New York, also said it was a good deal.
″Clearly the industry is in a decline. There has to be this type of action taken because there’s not enough business to go around. There’s too much capacity and too few programs,″ he said.
Hughes Aircraft will buy the business for 21.5 million shares of GM Class H common stock, which closed at $23 a share Friday, up 12 1/2 cents.
General Dynamics then would sell the shares to the public at a time set by GM. If the market value of the stock exceeds $450 million at the time of sale, the companies will split the difference. The deal is subject to governmental review.
The transaction includes General Dynamics’ Air Defense Systems Division in Pomona, Calif., and Rancho Cucamonga, Calif., and the Unmanned Strike Systems portion of the Conair Division, whose primary plants are in San Diego and Sycamore Canyon, Calif.
General Dynamics will retain ownership of the Rancho Cucamonga, San Diego and Sycamore Canyon facilities and lease them to Hughes.
The businesses have about 9,000 workers. Products involved include surface- to-air missiles, portable anti-aircraft missiles, the Tomahawk sea-launched cruise missile, Advanced Cruise Missile and the Phalanx shipboard anti-missile gun and Rolling Airframe Missile ship self-defense systems.
Hughes, with Delco Electronics, is part of GM’s Detroit-based Hughes Electronics Corp.
About 7,300 Hughes workers at plants in Concoga Park, Calif., Tucson, Ariz., La Grange, Ga., and Eufalia, Ala., make air-to-air, air-to-ground and anti-tank missiles.
In New York Stock Exchange trading Monday, GM Class H common stock fell 25 cents a share to $22.75. General Dynamics stock rose 12 1/2 cents a share to $66.25.