ROANOKE TIMES
Copyright (c) 1996, Roanoke Times
DATE: Friday, August 2, 1996 TAG: 9608020032
SECTION: BUSINESS PAGE: A5 EDITION: METRO
DATELINE: SEATTLE
SOURCE: BLOOMBERG BUSINESS NEWS
Boeing Co. said Thursday it will buy Rockwell International Corp.'s aerospace and defense businesses for $3.16 billion in stock and debt.
Boeing, already the world's largest commercial aircraft maker, will become the third-largest defense contractor and take over work on the international space station, the Minuteman missile, the B-1B bomber and other government contracts.
Rockwell, which built NASA's space shuttle fleet, will complete its transformation into an electronics company competing with Motorola Inc. and General Electric Co., and will eliminate nearly all of its debt.
Rockwell is selling ``because they've been trying to position themselves as more than an aerospace business. ... Boeing is getting these [assets] at a very good price,'' said Aaron Hollander, an analyst with First Equity Inc., a New York investment bank specializing in aerospace.
Boeing shares closed up 621/2 cents at $89.121/2 a share. Rockwell closed up $2.75 at $55.25 a share.
Rockwell said Boeing will assume $2.2 billion of Rockwell's debt and $100 million of its pension liabilities, and issue $860 million of Boeing stock to Rockwell shareholders.
Just before the sale, Rockwell will transfer its automation, semiconductor, automotive and Collins Avionics businesses to a new company that will retain the Rockwell name.
Ten years ago, two-thirds of Rockwell's revenue came from government contracts with defense and space agencies, but the company has been expanding its consumer electronics and wireless communication businesses.
Defense contracts now account for about one-quarter of Rockwell's revenue, and the company is the world's largest maker of semiconductors for fax machines and modems.
After the transaction, 70 percent of Rockwell's revenues will come from electronics, said Rockwell Chief Executive Donald Beall.
``When you plunge into the world of personal computers and the Internet, you're talking about a more volatile business, [but] it's a business that has treated Rockwell very well,'' Beall said.
The purchase will lift Boeing's defense and space revenue to almost $9 billion a year from $5.6 billion.
Boeing Chief Executive Phil Condit said he didn't expect the purchase to affect Boeing's 1997 earnings. After 1997, he said the Rockwell businesses will add to earnings.
Analysts said the purchase will strengthen Boeing's defense and space business, which accounted for 30 percent of 1995 sales.
Boeing executives have ``always wanted to have an even split between their commercial and government sides, and their government side has atrophied,'' said Paul Nisbet, an aerospace analyst at JSA Research in Newport, R.I.
Though its commercial aircraft business is booming now, Boeing has suffered in the past when jet orders dried up. A larger defense business will make the Seattle company less dependent on the boom-and-bust nature of the world's airline industry.
The increase in jetliner sales has left Boeing with $5.6 billion in cash and short-term investments at the end of the second quarter, up $1.1 billion from $4.5 billion at the end of the first quarter. Boeing said it will pay off $500 million of assumed Rockwell debt immediately after the purchase.
The transaction is the latest in a line of consolidations in the defense industry. Companies are merging to stay competitive as defense budgets shrink worldwide.
Since the end of the Cold War, the Defense Department has encouraged mergers, hoping the combined companies will gain efficiencies that allow them to charge the government less for equipment.
In January, Northrop Grumman Corp. paid $3.6 billion in cash and assumed pension liabilities for Westinghouse Electric Corp.'s defense electronics business. In April, Lockheed Martin acquired most of Loral Corp., which makes electronics, for $9.1 billion.
The sale of Rockwell's defense and aerospace operations will affect NASA more than the Defense Department. Rockwell is second on NASA's list of suppliers, trailing only Boeing.
The purchase will give Boeing an even larger role on the international space station, for which Rockwell makes the solar-power system. Rockwell's engines are the most commonly used power plants on American-made rockets.
Boeing plans to make the Rockwell assets into a subsidiary called Boeing North America Inc. Rockwell's defense and space divisions have 21,000 employees, and Boeing's have 30,000. Boeing has about 108,000 employees worldwide.
LENGTH: Medium: 91 lines ILLUSTRATION: PHOTO: AP Boeing CEO Phil Condit (left photo) listens to aby CNBreporter's question in Seattle Thursday. Donald Beall (right in
right photo), CEO of Rockwell International, and Donald David,
Rockwell president, prepare for a news conference Thursday in New
York. color (2 photos)