The rapidly shrinking defense industry was rocked again yesterday when the Lockheed Martin Corp. announced that it will acquire the bulk of Loral Corp., the nation's fifth-largest defense contractor, for $9.1 billion.
The move comes nine months after Martin Marietta Corp. merged with Lockheed Corp. to form the nation's largest defense and aerospace company, and five days after Northrop Grumman Corp. agreed to buy the Linthicum-based defense electronics arm of Westinghouse Electric Corp. for $3.6 billion.
The purchase of Loral's defense electronics and systems integrations businesses will form a company with sales of about $30 billion a year, a business backlog approaching $50 billion, and more than 200,000 employees.
Norman R. Augustine, president and chief executive of Lockheed Martin, said the lure of Loral is that it gives the company a strong presence in a market where it was not considered a major player.
The acquisition will make Lockheed Martin the biggest defense electronic company in the nation with sales of between $10 billion and $12 billion annually in that segment alone, said Paul H. Nisbit, president of JSA Research Inc. in Newport, R.I.
"This was a big surprise," said Mr. Nisbit. "Nobody expected them to make an acquisition of this magnitude so soon after their mega-merger."
Defense electronics companies are in demand at this time because of the Pentagon budget cuts. As military funding declines, the Department of Defense will be spending more on electronics to upgrade old aircraft and ships than to purchase new ones.
Loral, headquartered in New York, had sales of $6.7 billion last year and employs 38,000 workers.
Loral is best best known for its production of military electronic equipment, including radar detection and jamming devices used the F-18 fighter plane, components for the advanced Patriot missiles, targeting and navigation equipment for fighter planes, and military computers and software.
It has about 5,000 workers in the Washington area, including more than 2,000 at its Federal Systems division, next door to Lockheed Martin's Bethesda headquarters.
Loral's satellite and telecommunications businesses are not included in the purchase. They will be reorganized into a new company, called Loral Space and Communications Corp., in which Lockheed Martin will buy a 20 percent stake for $344 million.
It will be a publicly traded company that will begin with $700 million in cash and no debt.
