Lockheed Agrees to Acquire Sanders in $1.2-Billion Deal, Topping Loral’s Hostile Bid
Lockheed agreed Wednesday to acquire Sanders Associates in a friendly merger worth $1.2 billion cash, thus topping a recent hostile bid of $981 million for the New Hampshire defense electronics firm.
The acquisition, largest in Lockheed’s history, would significantly enlarge Lockheed’s already substantial role in the growing defense electronics business, Lockheed President Lawrence O. Kitchen said.
By accepting Lockheed’s bid of $60 per share, Nashua, N.H.-based Sanders may have escaped the clutches of Loral Corp., a New York defense electronics concern whose June 30 offer of $50 per share was spurned by Sanders.
But Loral officials on Wednesday left open the possibility that they may try to top Lockheed’s offer. Loral Chairman Bernard Schwartz said in a statement: “We continue to believe that the combination of Loral and Sanders is a unique one and is right for both companies and our nation’s defense.”
Lockheed officials began talking with Sanders several months ago, long before Loral had made its bid for the company, according to sources close to the deal. Following Loral’s offer, discussions were resumed last Saturday and continued through the weekend at Sanders headquarters, the sources said.
Sanders Stock Soared
Sanders stock has soared by 74% since Loral first made its bid. The Lockheed offer was announced after the stock market closed Wednesday. During the session, Sanders shares closed trading at $56.75, up $2.25 for the day and $24.12 1/2 since June 25. Lockheed gained 37 1/2 cents to close at $55.25.
Sanders is one of the nation’s three top producers of so-called electronic warfare equipment, particularly for jamming radar, which has become increasingly critical to the survival of modern military fighters against hostile missiles and aircraft.
Lockheed, which recently moved its corporate headquarters to Calabasas from Burbank, plans to put Sanders in a newly formed electronics group that would make a major new thrust into the electronics market, Kitchen said in an interview.
“It is part of a whole strategic initiative that we want to make into electronics,” he said. “We have talked about taking an initiative that would take us into the future, and now we have hopefully done it.”
Lockheed is expected to file documents about the offer with the Securities and Exchange Commission within five days, and the tender would commence shortly after. Any untendered shares would be exchanged at the same $60-per-share price. First Boston acted as Lockheed’s investment banker in the deal.
The company is expected to finance the offer by increasing its short- and medium-term bank debt, which totaled $544 million as of Dec. 31, 1985. In its most recent balance sheet, Lockheed also showed cash on hand of $63 million.
To discourage higher bids, the agreement provides that Lockheed will receive options to buy a controlling stake in Sanders even if another bidder obtains 20% or more of Sanders’ shares. Although Sanders’ principal business is one of the fastest-growing parts of the defense industry, the company has not performed up to Wall Street expectations in recent years and its earnings have been hurt by high start-up costs for several new products.
“They have been underachievers for the past two or three years,” said Robert Hanisee, a defense electronics industry analyst at Seidler Amdec Securities in Los Angeles. “They have two programs and some other classified programs that have been giving them fits.”
Sanders lost $7.4 million on sales of $191.7 million in the quarter ended April 30. In its most recent fiscal year, ended July 25, 1985, the firm earned $37.1 million on sales of $886 million, a decline of 24.3% in profits on an 18.8% increase in sales.
“Sanders grew too fast several years ago, and they got out of control,” Hanisee said. “They never got it back under control”
Nonetheless, Hanisee and other analysts said Sanders has top technology and a good market position that will benefit Lockheed’s goal to enlarge its electronics business.
Electronic warfare has become the fastest-growing area of the aerospace industry, and it is likely to continue growing as the overall defense budget is cut.
Aircraft Business May Slow
Meanwhile, the aircraft business--Lockheed’s traditional business--is expected to slow considerably over the next decade as the Pentagon increasingly chooses to upgrade the electronics packages of existing aircraft.
Sanders specializes in the area of radar jammers, which block and deceive hostile radar with electronic noise and false signals. It is the sort of equipment that Lockheed would ordinarily purchase to install in its aircraft.
Kitchen said Lockheed’s new electronics group will be headed by former Lockheed Chairman Roy A. Anderson. Anderson will remain chairman of the Lockheed executive committee.
During his reign as chief executive at Lockheed, Anderson was credited with putting the company back into financial health and broadening its defense businesses.
“Roy’s real mission here is to bring Sanders into the Lockheed fold,” said Wolfgang Demisch, an aerospace analyst at First Boston in New York. “Lockheed is a West Coast company and Sanders is an East Coast company. To get the engineers to begin to communicate is going to take tact, skill and diplomacy.”
Kitchen said Anderson will decide which parts of Lockheed’s existing businesses may be transferred into the new unit. Lockheed said it plans to put its Lockheed Electronics Co., headquartered in Plainfield, N.J., into the new group.
LOCKHEED AT A GLANCE
A major defense contractor whose products include the C-130 and C-5 transport planes, reconnaissance aircraft and Trident and Poseidon missiles. The Calabasas-based company also has interests in shipbuilding, electronics and ocean mining. Government sales represent 88% of total revenue.
Year ended Dec. 31 (in millions) 1985 1984 1983 Sales $9,535 $8,113.4 $6,490.3 Net income 401.0 344.1 262.8
Assets: $2.6 billion Employees: 87,800 Shares outstanding: 65.2 million 12-mo. price range (NYSE): $43.25 - $60.125 Wednesday’s close: $55.25
SANDERS ASSOCIATES AT A GLANCE
Develops, manufactures and sells advanced technology electronics systems used in electronic warfare, oceanography, electro-optics, anti-submarine devices, long-range communications and precision products. Recent earnings by the Nashua, N.H., company have been hurt by high start-up costs for two new radar-jamming systems.
9 mos. Year ended ended April 25 July 31 (in millions) 1986 1985 ’84 ’83 Sales $611.9 $885.8 $746.1 $578.1 Net income 6.5 37.1 49.0 37.1
Assets: $393.7 million Employees: 11,400 Shares outstanding: 19.6 million 12-mo. price range (NYSE): $28.50 - $56.75 Wednesday’s close: $56.75
