Martin Marietta buys Grumman for $1.9 billion

March 07, 1994|By Ian Johnson | Ian Johnson,Sun Staff Writer

In a deal that would reshape the U.S. arms industry, Martin Marietta Corp. said today it will buy Grumman Corp. for $1.9 billion.

The two companies' boards said they unanimously agreed to a merger that would see Bethesda-based Martin Marietta pay $55 a share -- or 37 percent more than the company was worth at Friday's stock close -- for at least two-thirds of Grumman's shares.

The new company will have more than $13 billion a year in sales and make products ranging from missiles to jet engines.

Norman R. Augustine, Martin Marietta chairman and chief executive officer, said the merged companies would be "on the leading edge of the industry consolidation that is so essential to preserving our nation's defense capabilities and the jobs that go with them."

It will also "have the critical mass, breadth of programs and depth of technology to be solidly positioned in the aerospace/electronics industry," Mr. Augustine said.

Grumman chief executive Renso L. Caporali said a merger was essential because of shrinking defense budgets.

"Grumman concluded over one year ago that we could not thrive in the current business climate without making a significant strategic move," said Mr. Caporali, who will join Martin Marietta's board. "We looked at a number of different approaches and combinations, and this is far superior to any of our other options."

Grumman said earlier this year that it would close its 250-employee aircraft cable plant in Salisbury and sell its 100-employee machining parts factory in Glen Arm. The company is in the midst of an $85 million plan to lay off 500 workers and close several of its aircraft test and design facilities on Long Island.

With 18,000 employees, Grumman, based in Bethpage, N.Y., is best-known for designing and building such Navy fighter planes as the F-14 Tomcat.

Last year, Martin Marietta announced that it, too, was cutting back operations, including the closure of its Glen Burnie submarine-detection plant, which employs 500 workers. The company has a national work force of 93,000, with facilities in 39 states, including a jet and rocket engine plant in Middle River that employs 1,400.

Martin said it would finance the merger with Grumman through )) commitments worth $2.4 billion from Bank of America National Trust and Savings Association and Morgan Guaranty Trust Company of New York. It said it would not issue more stock to pay for the purchase, but may issue another $500 million in new shares for other purposes.

Investors seemed to embrace the takeover; at mid-day, Martin Marietta's stock was up $1.75 a share to $46.50, while Grumman's soared $14.12 a share to $54.

The merger would create one of the country's largest defense contractors, rivaling General Motors' Hughes Electronics and Lockheed Corp. It also would make Martin Marietta a world leader in the highly competitive space launch market and leave it and McDonnell Douglas Corp. as the country's only rocket makers.

The acquisition is Martin Marietta's third major purchase in less than a year. Last April, Martin Marietta agreed to purchase General Electric Co.'s aerospace division for $3 billion and in December it bought General Dynamics' rocket business for $208 million.

In October, the company agreed to pay the government $6.7 million to settle claims that a GE division in Pittsfield, Mass., double-billed on 28 defense contracts from 1979-88.

Also, three satellites built by GE went awry last year. The Landsat 6 satellite was lost after a launch on a Titan; the $1 billion Mars Observer stopped communicating just as it was to enter Mars' orbit, and the NOAA-13 satellite failed days after launch.

Today's merger would strengthen Martin because it would fill two large holes -- electronics and aircraft structures -- in its product line-up.

"It appears to be a reasonable setup. Martin's already one of the nation's leading defense companies and this will reinforce it. They complement each other well," said James E. Peirce, a defense industry analyst with PNC Bank in Philadelphia.

The merger is due to be completed by April 4, but is subject to federal antitrust review. Mr. Peirce and other analysts said approval was likely.

The government, Mr. Peirce said, is encouraging defense industry fusion as a way for the companies to cope with post-Cold War defense budgets.

"The way the wind seems to be blowing about combinations, this has an excellent chance of being allowed," Mr. Peirce said.

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