Electronic Systems beckons to buyers

Since Westinghouse Electric Corp. put its defense business on the block 11 days ago to help pay for the $5.4 billion acquisition of CBS Inc., the focus has shifted to who might acquire the company's Linthicum-based Electronic Systems division and what will happen to the 14,000 workers, more than half of them in Maryland.

Analysts don't expect Westinghouse to have any difficulty selling the division, which had sales of $2.5 billion last year. Electronic Systems is widely viewed as well run and positioned to benefit from its strong technology base as the Pentagon spends money on electronic equipment to put new life into old planes and ships rather than buy new ones.

In fact, most analysts anticipate that a deal will be completed in three to six months for the division, which has plants in Linthicum, Hunt Valley, Annapolis, Sykesville and elsewhere in the nation.

"Westinghouse is a very strong franchise, especially in the airborne radar and defense electronics markets," said Wolfgang Demisch, a defense industry analyst with BT Securities in New York.

Michael H. Jordan, chairman and chief executive of Westinghouse, received inquiries from three potential buyers even before the division was officially placed on the market.

It's not surprising. These are difficult times for defense contractors. The industry is in a buying frenzy as companies try to gobble up competitors in the hope of grabbing a bigger slice of the shrinking Pentagon pie -- and to be among the industry's survivors.

The consolidation already has cost more than a million defense workers across the country their jobs, and the number is expected to grow. Westinghouse has eliminated 8,500 jobs in Maryland since 1988, and analysts say that more cuts are likely at Electronic Systems under a new owner.

The common practice within the industry is for the buyer to close plants and merge similar operations. "There is a pretty good chance that some of Westinghouse's work will be shifted elsewhere," said Paul H. Nisbit, president of JSA Research Inc. in Newport, R.I.

"There is tremendous over-capacity" in the defense electronics industry, said Gerrold Lundquist, a partner at McKinsey & Co. Inc., a New York-based international management and consulting company. In other words, there is not enough business to keep everybody financially healthy.

Industry officials see a shakeout coming that could result in the demise of six of the 10 defense electronic companies in the nation.

Mr. Demisch said Electronic Systems will be a prize for any company.

Analysts and others in the industry see more than a half-dozen potential buyers for the division. The front-runners, they say, are Loral Corp., Hughes Aircraft Co. and Lockheed Martin Corp.

Raytheon Co. and Rockwell International Corp are considered likely bidders. The dark horses could be General Dynamics Corp. and the Carlyle Group, a Washington based investment banking company that has made its way into the world's top 50 defense contractors.

Here is a look at the front-runners and how the Electronic Systems division would fit into their operations.

Loral Corp.

Headquarters: New York

Sales: $5.4 billion

Net income: $288.4 million

Employees: 28,900

The company is seen by analysts as the front-runner. "You would have to start with Loral," Mr. Demisch said, "simply because they have been so aggressive on the acquisition front in recent years."

Loral has made three major acquisitions in as many years: LTV Corp.; International Business Machines Corp.'s federal systems operation in Bethesda; and the defense operations of Unisys Corp.

"What Bernie Schwartz wants, Bernie Schwartz gets," Mr. Nisbit said of Loral's 69 year-old chairman and chief executive, who has made Loral one of the world's top 10 defense contractors via the acquisition route.

"I think Electronic Systems would fit well with Loral," Mr. Nisbit said. "They are already in the same lines in business: radar, air traffic control and anti-submarine warfare."

Loral has the big Federal Aviation Administration contract to upgrade the country's air traffic control system. Westinghouse is a manufacturer of ground-based radars used to track planes flying between cities and to monitor air traffic close to airport as planes are landing and taking off.

While Westinghouse is a leading supplier of airborne radars for ,, use on military aircraft, Loral is in the business of building electronic systems that warn pilots when an enemy radar systems has locked on their plane.

Both companies produce jammers designed to blind enemy radar, electronic equipment to detect and track submarines, and night vision equipment for use on fighter planes.

A purchase by Loral could be good for the Maryland employees who are worried about their jobs being moved elsewhere. Mr. Schwartz has a history of leaving companies alone and allowing them to function as "profit centers."