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BIW Sale Invites Industry Speculation

On August 17,1995, General Dynamics and Bath Iron Works (BIW) announced a "definitive agreement" for BIW to become a subsidiary of General Dynamics, for a price of $300 million.

According to General Dynamics, owners of the Trident and Seawolfproducing Electric Boat Division (Groton, Conn.), the transaction has been approved by the board of directors at both General Dynamics and BIW. Some industry experts view the sale of the Maine yard — which produces Arleigh Burke class destroyers — as a consolidation of the defense industry, and speculation is that General Dynamics will seek to expand its defense- related holdings even further. Commenting on this speculation, General Dynamics' Corporate Director of Public Affairs, Norine Lyons, said: "We have said that we're open to offers," although she refused to discuss details.

Although BIW's 1995 revenues have been estimated to be $800 million, the sale of BIW for $300 million is a significant drop compared with the $580 million sale price it commanded from New York investment group Gibbons, Goodwin & Van Amerongen in 1986. General Dynamics will not assume any of the yard's debt.

Although no official word has been given, the general feeling is that while a facility upgrade may be in order for the new General Dynamics' subsidiary, no attempt will be made to attract commercial orders. "They (Bath Iron Works officials) have said publicly that they don't see much there. We tend to agree," said Ms. Lyons.

While the company's current intent is not to pursue commercial work, this will not necessarily increase other major U.S. shipyards' chances of landing commercial bids. "I don't believe that this will have a significant impact on the other yards winning more commercial bids," said Tom Bowler, president of the American Shipbuilding Association (ASA). "Avondale and Newport News have surprised armchair critics by being able to compete and win international contracts. I believe that Avondale, Newport News, as well as NASSCO, will continue to compete for commercial contracts." In evaluating the takeover's potential effect on the industry as a whole, Mr. Bowler's outlook was encouraging. "The sale is certainly a positive move for the industry. It will make Bath Iron Works' financial condition much stronger. Perhaps more important, Bath now has an owner that is deeply familiar with the defense industry, and also has experience in the shipbuilding industry." He also predicted the sale will not significantly affect both yards' conducting "business as usual." Mr. Bowler said, "I don't see any immediate effect. My understanding is that Bath Iron Works and Electric Boat will remain as separate operating entities…There appears to be no plan of a mass merging of the shipyards. Both have significantly different product lines, both producing complicated ships in their own design." Perhaps the rationale for the sale of Bath to General Dynamics was most consisely summed up by Ms. Lyons, "We have the financial capability to improve the competitiveness of the yard." And General Dynamics' strategy for attracting further Pentagon spending? "Affordability, building the best at the best prices," added the General Dynamics representative.

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