LOS ANGELES -- Hughes Aircraft Co. agreed Monday to buy General Dynamics Corp.'s missile business for $450 million in stock, a deal that puts Hughes in position to challenge Raytheon Co. as the nation's No. 1 missile maker.
The deal had been widely expected since last week, when General Dynamics Chairman William Anders announced on Wednesday at the annual shareholders meeting that the sale could be completed soon.
Los Angeles-based Hughes subsequently announced last week it was in discussions with General Dynamics, which has been shedding assets since last year in business areas where it does not have close to the leading market position.
Raytheon, of Lexington, Mass., which has annual missile sales of $2.5 billion, also said last week it had an interest in the General Dynamics missiles business. But it did not indicate if it had made a formal bid. Raytheon, maker of the Patriot anti-missile system that gained fame during the Persian Gulf War, is the nation's largest missile maker.
General Dynamics, of Falls Church, Va., is the nation's second- leading defense contractor after McDonnell Douglas Corp. and a leader in producing missiles for the Navy. Its missiles business earned $76 million on sales of $1.4 billion last year, while analysts have estimated Hughes has annual sales of $1.3 billion.
Hughes will take over production of several General Dynamics lines, including the Stinger portable anti-aircraft missile, the Tomahawk sea- launched cruise missile, the Advanced Cruise Missile, the Standard shipboard surface-to-air missile and the Phalanx shipboard anti-missile gun.
Analysts note the deal makes sense for Hughes because it will significantly broaden its product line and give it a technological boost in infrared missile technology and radar missiles.
Hughes has been a leader in producing air-to-air missiles for the Air Force used in combat between fighter jets, including the Phoenix and Amraam missiles. Hughes also produces the TOW antitank missile and the Maverick air-to-ground antitank missile.
The deal could result in Hughes closing a number of facilities. Both Hughes and General Dynamics have significant unused factory capacity and funding declines are expected in many missile programs as a result of the end of the Cold War.
The acquisition, which is subject to normal government reviews, will include facilities with about 9,000 employees, including General Dynamics Air Defense Systems Division production facilities in Pomona and Rancho Cucamonga, Calif., and the Unmanned Strike Systems portion of the Convair Division, whose primary plants are in San Diego and Sycamore Canyon, Calif.
The San Diego facility also produces space systems, Army radios and commercial jet fuselages for the McDonnell Douglas MD-11 trijet. Anders said last week that the company plans to keep the space business but may sell all of the others in San Diego, where General Dynamics is the largest private employer.
Anders said last week that General Dynamics will concentrate on operations that produce tanks, planes, submarines and space systems.
General Dynamics will retain ownership of the Rancho Cucamonga, San Diego and Sycamore Canyon facilities and will lease them to Hughes Aircraft.
Hughes has 7,300 employees at its missile facilities in Canoga Park, Calif.; Tucson, Ariz.; La Grange, Ga.; and Eufaula, Ala.
The deal calls for Hughes to pay General Dynamics 21.5 million shares of GM class H common stock valued at a minimum of $450 million.
'Such an offering is expected to occur as soon as practicable after the completion of the acquisition by Hughes and will enhance the liquidity of Class H shares,' the companies said in a joint release. Shares not sold in the public offering will be reacquired from General Dynamics Sept. 30, 1993.
If the market value of the shares exceeds $450 million, at the time of sale or reacquisition, Hughes and General Dynamics will share the excess value.
In mid-session trading on the New York Stock Exchange, GM Hughes shares were up 25 cents to $23.25; General Dynamics shares gained 75 cents to $66.875; and Raytheon shares were up 37.5 cents to $45.125.