ROANOKE TIMES
Copyright (c) 1996, Roanoke Times
DATE: Tuesday, January 9, 1996 TAG: 9601100125
SECTION: BUSINESS PAGE: B-6 EDITION: METRO
DATELINE: BETHESDA, MD.
SOURCE: Associated Press
Lockheed Martin Corp. said Monday it will pay $9.1 million to buy most of Loral Corp., expanding Lockheed Martin's dominance of a shrinking defense industry.
Lockheed Martin, the world's biggest defense company, plans to pay $7 billion in cash to purchase Loral's defense electronics and electronic-systems integration businesses. It also will assume $2.1 billion of Loral debt.
The combined company will be a global powerhouse in defense and civilian aerospace, analysts said. Lockheed Martin said the transaction will give the combined company annual sales of $30 billion, up from $23 billion, enhancing its position in missiles to combat systems.
The purchase ``solidifies [Lockheed's] status as the No. 1 defense company,'' said Keith Patriquin, an analyst at Boston's Loomis, Sayles & Co. ``You're adding a very good company in good product lines to the Lockheed franchise.''
Investors liked the transaction, boosting Loral's share price by 24 percent and Lockheed Martin by 4 percent.
The rest of Loral, mainly its space and satellite-related businesses, will be combined into a new publicly traded company called Loral Space. Lockheed Martin also will pay $344 million, or $7.50 a share, for a 20 percent equity stake in Loral Space.
The new company will control Loral's share of the growing Bermuda-based Globalstar telephone and paging system.
The transaction is the latest in a flurry of defense-industry mergers by companies trying to grab a bigger piece of a business that has shrunk in the 1990s as governments worldwide cut military spending. New orders at U.S. defense companies fell to $73.3 billion in 1993 from $173 billion in 1989.
Lockheed Martin, a Bethesda, Md.-based maker of military aircraft, space systems, missiles and electronic systems, is itself the product of a mammoth merger last March between Lockheed Corp. and Martin Marietta Corp.
The Loral purchase, which must be approved by the Justice Department's antitrust division, calls for Lockheed Martin to pay Loral shareholders $38 a share in cash and give them one share of Loral Space.
Banks led by Morgan Guaranty Trust Co. of New York, Bank of America and Citicorp agreed to lend Lockheed Martin $3.5 billion for the merger, the company said. The banks are also setting up a $10 billion credit facility for the purchase of Loral shares.
Loral's shares jumped $8.871/2 a share to an all-time high of $45.121/2 Monday, reflecting the $38 share price plus $7.50 for the one Loral Space share. About 3.2 million shares of Loral changed hands in midafternoon New York trading, six times the three-month daily average of 529,000 shares.
Lockheed Martin shares were up $3 at $80.371/2 in trading of 1 million, more than triple their three-month daily average of 326,200.
``Loral is one of the few defense-electronics firms left to acquire,'' said Paul Nisbet, an analyst at JSA Research in Newport, R.I. Lockheed Martin paid a fair price for Loral given the strong demand for defense-electronics companies, he said.
Electronics firms are more attractive than other makers of military hardware because in times of budget cuts, governments are more likely to upgrade old aircraft and ships with new radar and other gear than to buy new ones, Nisbet said.
Loral is making a new missile for the Army's Patriot system, which became famous during the Persian Gulf War. It is also working on the Army's Multiple Launch Rocker System and Army Tactical Missile System, as well as the Joint Direct Attack Munition, which will be a new precision weapon for the Air Force and Navy.
Loral is also among the biggest makers of air traffic control systems at civilian airports.
LENGTH: Medium: 73 linesby CNB