CEO says growth through acquisition remains strategy for Martin Marietta

April 10, 1994|By Ted Shelsby | Ted Shelsby,Sun Staff Writer

BETHESDA -- Although deeply disappointed at losing the fight for the Grumman Corp., the top executive of Martin Marietta Corp. says his strategy remains the same -- growth through acquisitions.

But, as the losing fight for Grumman showed, it won't necessarily be at a whirlwind pace and certainly not at any price.

"There will be more acquisition opportunities and, basically, we are on the same path as before," Norman R. Augustine, chairman and chief executive of Martin Marietta, said two days after Grumman announced it would merge with Northrop Corp., Martin Marietta's competitor for Grumman.

"We are in a position where we don't have to do any more acquisitions, which is a wonderful position to be in," Mr. Augustine said.

"We don't have any sense of desperation. We don't have anything to prove."

In fact, despite a rapidly shrinking defense market, Martin Marietta remains remarkably strong, without the pressure felt by some of its competitors, including Northrop, to make quick acquisitions to ensure survival.

Though Martin Marietta is primarily known for its production of Titan rockets and electronic equipment used on fighter planes and military helicopters, Mr. Augustine noted that the company's non-Department of Defense businesses rank it among the top Fortune 150 companies.

With $10 billion in annual revenue, the Bethesda-based company is among the nation's top four defense contractors. It has 100,000 employees and a $16 billion backlog of orders. It posted an operating profit of $788.5 million last year.

Martin Marietta has just about doubled its size over the past 18 months, primarily through acquisitions. In late 1992, it acquired the aerospace division of General Electric Corp. for $3.05 billion. In December, it entered into an agreement to purchase the Atlas rocket production arm of General Dynamics Corp. for $208.5 million. It expects to close on this transaction in the next few weeks.

They were expensive moves, but Mr. Augustine likes to point out the company's current debt-to-capital ratio is in the mid-30-percent range. This would be about half the debt level of Northrop after its acquisition of Grumman. Its lower debt puts Martin Marietta in good position to make more acquisitions when the right opportunity comes along.

With the Grumman fight behind him, Mr. Augustine took time to reflect on the events of the past 30 days and to share his vision of what lies ahead for both his company and the defense industry as a whole.

He also offered some additional insight into the multibillion-dollar bidding war for Grumman and explained his reluctance to

become involved in hostile takeover battles.

And he disagreed with those industry analysts predicting that the days of friendly, negotiated sales in the defense industry are over.

Leaning back in a yellow wingback chair in an office at company headquarters and bringing the fingertips of his hands together before his face, Mr. Augustine spoke about the disappointment of not landing Grumman, the Bethpage, N.Y., company best known for its production of military aircraft, including the F-14 Tomcat.

"We clearly thought we had a very good match," he said. "Almost all of their business aligned with ours."

Both companies, he explained, are involved in the development of such products as aircraft electronics, computerized equipment for the Internal Revenue Service to speed the processing of tax forms, and equipment that can transmit large amounts of information -- sending the entire contents of the Encyclopedia Britannica, for instance, in a second.

While Grumman's information and service businesses are fine businesses, Mr. Augustine said, they are not large. "But if you combined them with our business, you had a quite large critical mass in these two businesses that would have been very strong."

But the price had to be right.

"We knew what [Grumman] was worth and we knew what we were willing to pay. We told Grumman at the very outset that we would not go above $55 a share. We put it in writing, and we meant it."

Defense analysts speculated that Northrop's aggressiveness in going after Grumman was partly driven by a feeling on the part of its chairman, Kent Kresa, that he had been snubbed by Grumman.

The Northrop executive had been holding talks with Renso L. Caporali, his counterpart at Grumman, for about a year and felt he was close to reaching an agreement. Mr. Kresa had said that Northrop was prepared to pay $50 a share and considered paying even more.

Those talks came to an abrupt end in March before Northrop made a formal offer for Grumman. Grumman instead announced it had entered into a merger agreement with Martin Marietta.

Northrop countered with a bid of $60 a share, three days after Grumman and Martin Marietta announced they had reached their agreement.

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