23 June 1999. Thanks to D. Sources unknown.
"It expands General Dynamics' holdings in communications technologies, and its presence in signal-encoding and other services for the intelligence community."
IRVING, Texas (June 22, 1999) - GTE Corporation and General Dynamics announced today a definitive agreement under which General Dynamics will acquire GTE's Government Systems subsidiary for $1.05 billion.
The transaction calls for General Dynamics, based in Falls Church, Va., to acquire all of the assets and operations of GTE Government Systems Corporation (GSC), except for the Information Systems Division (ISD), based in Chantilly, Virginia.
Approximately 6,200 Government Systems employees worldwide will become employees of General Dynamics. Closing of the sale, which requires approval by the U.S. Department of Justice, is expected to occur within the next 60-90 days.
Upon closing, GTE Government Systems will become part of General Dynamics Information Systems and Technology business group.
GTE Chairman and CEO Charles R. Lee said, "GTE Government Systems has been a central part of GTE's heritage and a major contributor to its success. It is gratifying that one of the defense industry's most prominent and highly regarded companies, General Dynamics, recognizes the talent and creativity of this outstanding team. At the same time, this transaction is important to GTE as we focus on our core telecommunications services and reposition ourselves for future growth."
Nicholas D. Chabraja, General Dynamics Chairman and CEO, said, "We are committed to our defense customers and see significant growth opportunities in the defense electronics market. We believe this transaction provides strong career opportunities and a good corporate home to the fine GTE employees who have made their organization so successful.
"This is a solid addition to our defense core and a superb strategic fit. We formed the Information Systems and Technology group in 1998 from a series of acquisitions. Anticipated 1999 revenues for the group had been estimated at $1 billion. With this acquisition, we more than double the size of the group, and tremendously expand its capabilities," Chabraja said.
"The Government Systems organization gives us world-class information assurance, land communication and networking capabilities," Chabraja said. "It strengthens our signal processing, applications and decision support capabilities, and creates a worldwide information systems support and services organization.
This transaction is the most recent in GTE's previously announced initiative to sell non-core business assets. Proceeds from the sale of GTE Government Systems, along with its wireline properties, will be used to pay off debt incurred with GTE's pending purchase of Ameritech wireless properties in Illinois and Missouri, and to invest in future high-growth strategic initiatives.
GTE will continue to market separately the Information Systems Division (ISD) unit, with approximately 900 employees, and expects to reach a definitive agreement on its sale within the next three to four months. ISD will operate as a GTE subsidiary until an agreement can be reached with a suitable strategic purchaser.
Armen Der Marderosian, GTE executive vice president-Technology & Systems, said: "In the later stages of the negotiation process, it became evident that it was in the best interest of both GTE and the employees of ISD for GTE to re-market ISD's capabilities to prospective purchasers who are more closely aligned with the business segment within which ISD operates."
General Dynamics is a leader in supplying sophisticated defense systems to the United States and its allies. The company employs 29,800 people in the United States, Canada and the United Kingdom.
General Dynamics has three main business segments: Marine Systems, Combat Systems, and Information Systems and Technology. Marine Systems designs and builds submarines, surface combatants, auxiliary ships and large commercial vessels. Combat Systems supplies land and amphibious combat machines and systems, including armored vehicles, power trains, turrets and armament handling systems. Information Systems and Technology produces cutting edge signal and information processors and battlespace information management systems, while incorporating the use of commercial technologies for military applications.
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General Dynamics Corp., determined to beef up its defense-electronics operations to compete more effectively against the reigning international giants, agreed to acquire three of GTE Corp.'s military-communications units for $1.05 billion.
The all-cash offer, which beat out a competing bid by a team including New York-based L-3 Communications Holdings Inc., caps an aggressive acquisition drive launched nearly three years ago by General Dynamics Chairman Nicholas Chabraja. The move is intended to make the Falls Church, Va., contractor a major player in some of the Pentagon's fastest-growing segments: battlefield communications, data management and intelligence.
The proposed acquisition, which would add $1.2 billion in annual revenue and about 6,200 employees, isn't aimed at increasing General Dynamics' manufacturing capabilities. Rather, Wall Street analysts and officials from both companies said, the goal is to expand the company's design and service capabilities, while at the same time broadening its military customer base in the U.S. and overseas.
The new entity, which is expected to get the green light from the Pentagon and federal antitrust officials, would be positioned to supply the armed services with everything from logistics support to computer security to certain surveillance programs. "This is the sector of the defense budget that's growing. This is where you want to be," said Gordon England, executive vice president of General Dynamics, to analysts after the announcement.
Since the summer of 1995, when General Dynamics began pursuing its unique brand of defense-industry consolidation, the builder of . combat vessels, armored equipment and other defense systems has agreed to spend about $8.3 billion to snap up various electronics, armament and aviation businesses. Many of them are in niches shunned by larger defense companies. Although the company failed in separate, much-publicized bids to become the dominant prime contractor for the Army and the Navy, through the years it has maintained the same dual-track strategy to grow its military sales.
Incorporating new electronics businesses into current surface ships, submarines, armored vehicles and other equipment it builds is gradually transforming General Dynamics into a stronger, more vertically integrated contractor. Simultaneously, the company increasingly is looking for ways to leverage those acquisitions and new technologies to establish itself as a large-scale project integrator. The latest proposed additions are slated to more than double projected revenue for the company's Information Systems and Technology group. Moreover, GTE's operations have both the contracts and the technical wherewithal to serve as important building blocks for at least two of General Dynamics' earlier electronics acquisitions. For all of 1998, the company reported $4.97 billion in revenue and earnings of $364 million.
Mr. Chabraja, indicating that the acquisition tear is about to come to at least a temporary halt, told analysts that he and his management team are now intent on improving the profitability of the businesses they have landed. "You would forgive me if I took a little bit of a pause" to make sure the newly assembled businesses are "operating at peak efficiency," Mr. Chabraja said.
In his remarks to analysts, Mr. Chabraja said the GTE businesses are expected to grow at an annual rate of nearly 7%, and they are projected to add about six cents a share to General Dynamics' earnings in the year 2000. The company also said the acquisition, scheduled to close in July, isn't expected to affect its pending $5.3 billion takeover of Gulfstream Aerospace Corp.
In recent weeks, the field of bidders in the long-delayed auction had narrowed to two. The losing bidder for the three units included L-3, Lehman Brothers Holdings Inc., and closely held Carlyle Group of Washington, according to executives close to the auction. The trio of investors had planned to set up those GTE holdings as a separate company, with much or all of it managed by L-3 Communications, the fast-growing and acquisitive defense-electronics concern led by Frank Lanza. Lehman Brothers and its affiliates hold about 26% of L-3 shares, which previously was spun off by Lockheed Martin Corp. A spokeswoman for L-3 couldn't be reached for comment.
Joseph Campbell, an analyst for Lehman Brothers, which is restricted from recommendations regarding L-3 shares, said the GTE units are expected to have about $90 million in operating profits this year. Mr. Campbell said that while the profit margins are lower than for other General Dynamics businesses, it is "all in all a pretty good acquisition," because it expands General Dynamics' holdings in communications technologies, and its presence in signal-encoding and other services for the intelligence community.
For General Dynamics, the GTE units would provide "enough critical mass" to position it potentially to become a prime contractor on some electronics programs, Mr. England told analysts. "We're certainly in a stronger position [with the GTE units] to bid domestic and international programs," he said. In addition to Lockheed Martin, some of the other major military-electronics suppliers are Raytheon Co. and Northrop Grumman Corp. The auction set up by GTE is yet to be completed, because a fourth unit still must be sold. Analysts speculated that the information-services division will fetch about $130 million to $150 million, with TRW Inc. and Litton Industries Inc. among the possible bidders.
Once that final acquisition is completed, GTE may end up with somewhat less money than the more than $1.3 billion that it originally expected.
In New York Stock Exchange composite trading yesterday, General Dynamics shares rose 12.5 cents to $66.75, and GTE shares fell 43.75 cents to $70.625.
Separately, the company said it received a seven-year contract valued at as much as $1.27 billion to remain as the prime contractor and program integrator for Hydra-70 rockets used by Army and Marine Corps helicopters. The company said the award not only secures its position "as the world's largest producer of air-to-ground rocket systems" but positions it "for major international sales over and above the base contract."