General Dynamics Corp. said it would buy rival Newport News Shipbuilding Inc.
for $2.1 billion in cash, creating the only U.S. builder of aircraft carriers and submarines for the U.S. Navy. General Dynamics' bid comes amid renewed consolidation in the defense industry, following Northrop Grumman Corp.
's $3.8 billion purchase last year of shipbuilder Litton Industries. The deal, if approved by regulators, would leave only two major U.S. contractors for naval military ships.
Under terms of the transaction, General Dynamics will pay $67.50 for each of Newport News' 31.9 million shares outstanding and assume about $500 million in Newport News debt. The offer represents a 23 percent premium to Newport News' closing stock price of $55.05 on Tuesday. General Dynamics said the boards of both companies have approved the transaction, which isn't expected to involve the closing of any shipyards. The companies expect to complete the acquisition in the third quarter.
"This acquisition will provide Newport News shareholders an attractive price, and our employees will benefit from being part of a larger, more diverse company," said William Fricks, chairman and chief executive of Newport News.
The planned acquisition would be the second attempt by General Dynamics to buy Newport News. The first bid, announced in 1999, was nixed by the U.S. Department of Defense because it would have created a monopoly builder of attack submarines and would leave only one company in charge of nuclear work.
The earlier proposal was valued at about $1.8 billion. Neither company immediately commented on potential antitrust concerns, though industry experts have speculated the Bush administration would be more open to defense mergers.
General Dynamics' new offer comes less than a month after Northrop completed its acquisition of Litton Industries, the largest builder of non-nuclear ships for the U.S. Navy.
It also comes as regulators scrutinize General Electric Co.'s proposed acquisition of Honeywell International Inc. (HON)
Newport News' business of building nuclear powered aircraft carriers and submarines for the U.S. Navy would complement General Dynamics' Marine Systems operation. Both companies produce Virginia-class nuclear-powered attack submarines. The aircraft carrier program at Newport News could combine with General Dynamics' battleships and auxiliary ship production.
The tender offer for Newport News shares is scheduled to begin within seven business days, General Dynamics said.
Last week, General Dynamics posted a 15 percent jump in first-quarter profits, driven by the strength of its combat systems and civilian aerospace operations. Newport News early Wednesday beat Wall Street's targets, with a 14 percent increase in quarterly profits.
Newport News also boosted its profit targets for the year by 10 percent. - (Reuters)