Allied defense plant is sold Towson AlliedSignal military radio unit bought by Raytheon

Deal worth $62.5 million

Defense giant to lease Joppa Road plant

700 jobs to stay 'initially'

July 22, 1998|By Greg Schneider | Greg Schneider,SUN STAFF

Raytheon Co. has agreed to buy AlliedSignal Communications Systems in Towson for $62.5 million, adding the local company to one of the top military electronics competitors in the world.

The Towson plant, with about $122 million in projected sales this year, has been on the market since January as AlliedSignal Inc., based in Morristown, N.J., reconfigures itself to focus on core aerospace products.

A Raytheon spokeswoman said the Lexington, Mass., company intends to employ all 700 or so Towson employees "initially" -- at least until the corporation sizes up the outfit and decides how it fits.

Raytheon will lease the Joppa Road plant from AlliedSignal. The company declined to disclose the term of the lease, but industry sources said it was a five-year commitment.

Aside from that uncertainty, experts said the transition should be good for employees because their line of work -- military communications -- never quite fit with AlliedSignal's stance as a diversified conglomerate with businesses in aerospace, automotive and chemical products.

"For Raytheon, communications systems is a main business, as opposed to a side business . . . and I'm sure they will invest in the business and grow it," said Stuart McCutchan, who publishes the newsletter Defense Mergers & Acquisitions.

The companies said the deal should close during the third quarter, provided it passes federal antitrust review.

Experts said the transaction should not suffer from the pall cast over the defense industry by Lockheed Martin Corp.'s recently aborted attempt to buy Northrop Grumman Corp., which the Justice Department feverishly opposed.

"This is nothing like that," said Renee Gentry, who tracks defense companies for the Teal Group consulting firm. The scale is much smaller, she said, and seems to raise no similar competitive concerns.

One of Raytheon's primary targets in the acquisition is the Towson plant's "friend-or-foe" military identification system, which helps combatants determine whether a target is really the enemy.

"Raytheon doesn't have anything like that, so it will be a nice addition to their Communications Systems Division," Gentry said.

Secure communications

The AlliedSignal plant also produces technology for secure communications systems, military and civilian air traffic management, and tactical information displays. Those lines should complement similar work being done at Raytheon, Gentry said.

Roger Threlfall, an analyst with J. P. Morgan Securities, said the acquisition will help Raytheon become more prominent in the fragmented military communications industry.

"There is no clear leader [in that industry], and part of the reason for that is the technology has been changing fairly rapidly," Threlfall said. "This is a good step along that path for Raytheon."

An AlliedSignal Communications Systems spokeswoman said that employees cheered when management gathered them together and told them they had been bought by Raytheon.

"This decision opens all types of growth channels for us," Dan Steele, the plant's general manager, told the gathering.

The plant has had a series of small layoffs in the past couple of years, as employment dwindled to about 700 from about 1,200.

No. 3 in defense

Last year, Raytheon remade itself into one of the top three companies in the defense industry, bulking up to more than $21 billion in annual sales through the acquisition of the military electronics operations of Hughes and Texas Instruments.

Only Lockheed Martin and Boeing Co. are larger than Raytheon. Raytheon leads the pack in certain areas of defense electronics, though, and that market has been the fastest growing of the entire defense industry.

Threlfall said Raytheon has not been one to buy a company and then close it or move it, but, since last year, it has been engaged in corporate streamlining.

Yesterday, in fact, Raytheon also announced the sale of a commercial aviation training business to GE Capital for $68.5 million.

"Deals like [these] represent fine-tuning," said McCutchan, the defense newsletter publisher. "The big deals are over and now is the time when people are going to tweak their portfolios."

Pub Date: 7/22/98

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