LOS ANGELES -- Hughes Aircraft Co. said yesterday that it had agreed to acquire General Dynamics Corp.'s missile business for stock worth at least $450 million.
The deal continues the consolidation of the weapons business now that the Cold War has ended and puts Hughes neck-and-neck with its chief rival, Raytheon Corp., as the nation's largest missile-maker.
The transaction also reflects General Dynamics' strategy of shedding all businesses except its fighter plane, submarine, tank and space-launching divisions. It believes that these will continue to have the best prospects in spite of the decline in military spending. Earlier this year, General Dynamics sold its Cessna small-aircraft division and it has put a number of smaller businesses up for sale.
General Dynamics' missile division, which had sales last year of $1.4 billion and operating profits of $76 million, makes the radar-evading advanced cruise missile and a number of shipboard missiles, including the Tomahawk and Standard missiles. Its operations are spread among a number of sites in California, where most of Hughes' missile plants are situated.
Although the missile business has never been very profitable for General Dynamics, analysts said the deal made considerable sense for Hughes. They said that Hughes, which had missile sales of about $1.2 billion last year, should be able to slash costs in the combined operations by eliminating duplicated costs.
Hughes, a unit of General Motors Corp., specializes in air-to-air missiles carried on fighter planes, including the advanced, medium-range air-to-air missile known as Amraam, the Phoenix missile and the Maverick missile.
General Dynamics said last week that it was close to selling the missile business. Lawrence M. Harris, an analyst with the Kemper Securities Group in Chicago, said the price was about what he expected.
Hughes will pay General Dynamics 21.5 million shares of GM class H common stock. GM Class H stock is tied to the financial performance of GM Hughes Electronics Corp., the GM subsidiary of which Hughes is a part. Class H shares closed at $22.75 on the New York Stock Exchange yesterday, up 25 cents.
The companies said General Dynamics would be able to sell the stock in a secondary public offering to be arranged by General Motors. Any of the shares not sold to the public by General Dynamics would be bought back by General Motors Sept. 30, 1993.
The companies said General Dynamics would receive a minimum of $450 million for the shares. If the market value of the shares exceeds $450 million at the time of the public offering or the buyback, Hughes and General Dynamics will split equally any proceeds over $450 million after deducting their expenses.
Hughes said the secondary offering would be arranged as soon as practical after the closing of the deal.
Hughes has been trying to expand its non-military businesses to insulate itself from the decline in Pentagon spending, but it has said that it still sees profitable opportunities in the military programs that remain.
C. Michael Armstrong, a former top executive with International Business Machines Corp. who became Hughes' chairman last month, said the acquisition would make Hughes more competitive in the missile business.
A spokesman for Hughes said there had been no decision yet on how the companies would be combined or how many of the 9,000 employees of the General Dynamics division or the 7,300 employees in Hughes's missile business might lose their jobs.
Analysts said that Hughes, although technically proficient in its missile business, had been unable to keep its costs as low as those of Raytheon, with which Hughes competes for yearly production contracts on a number of programs. As a result, Raytheon has been winning recent competitions for the majority share of production on the Amraam and Maverick programs.