Boeing to Buy ArgoSystems for $275 Million

Boeing Co. said Monday that it would purchase ArgoSystems Inc., a defense electronics company, for about $275 million, giving it a much larger stake in the growing field.

ArgoSystems, based in Sunnyvale, Calif., manufactures sophisticated radar and communications systems, mostly for the Navy. It will operate as a wholly owned subsidiary of Boeing.

“ArgoSystems is a clear leader in its field. This association will expand our overall activities and significantly enhance our ability to compete in the defense electronics area,” Boeing President Frank A. Shrontz said in a statement.

A Boeing spokesman said the company will build its capability in defense electronics internally, helped by the strengths that ArgoSystems will add.

“Extremely Good Offer”

“We were not looking for a business combination, but Boeing came to us with an extremely good offer,” Gary D. Kimmel, ArgoSystems chief financial officer, said.

Analysts said Boeing, the world’s largest commercial aircraft company, was acquiring a good firm with a strong product mix and good profit margins. But they said Boeing would need additional acquisitions in defense electronics to become a major player in that business.

“It certainly is on the small side, but there aren’t many opportunities in electronic warfare if that’s what you’re looking for,” said Paul Nisbet, an analyst who follows Boeing at Prudential-Bache Securities.

“This is a small deal from a dollars-and-cents standpoint. Boeing will have to do something else if they really want to get into the business,” said analyst Alan Benasuli of Drexel Burnham Lambert.

“Boeing will seek more expansion in the field. This (deal) is not going to turn Boeing into a major defense electronics player overnight,” said Rob Kugel, analyst at Morgan Stanley & Co.

Faces a Void

Boeing has said that it currently faces a transitional void in its military business and that it was attempting to replace expiring programs.

But ArgoSystems is not expected to have much of an impact on the company’s overall operations, analysts said.

Other aerospace companies have already made major acquisitions in the defense electronics field, such as Lockheed’s purchase of Sanders Associates for $1.2 billion.

Although Boeing has nearly $4 billion in cash on hand after this acquisition and its $700-million investment in Allegis Corp., it may need to preserve funds to develop its new 7J7 medium-sized commercial aircraft, Nisbet said.

Allegis issued Boeing $700 million in notes, which are convertible into about 15% of its stock, as part of an aircraft purchase transaction.

Boeing’s 7J7, which is being built with a consortium of Japanese companies, is scheduled to be operational in 1992.

Morton Langer-Binder, an analyst at Bear, Stearns & Co., said the acquisition could be designed to complement one of Boeing’s existing operations, such as the Airborne Warning and Control System (AWACS).

“They must have had a definite gap that they saw and they looked to ArgoSystems to fill it,” Langer-Binder said.

About half of ArgoSystems’ revenue comes from electronic warfare systems. The company makes electronic reconnaissance systems for ships and planes that analyze and jam radar and military communications signals. About 30% of ArgoSystems’ business is international.

The boards of both companies have approved the merger, which will be accomplished through a tender offer by a Boeing subsidiary for all the ArgoSystems’ shares at $37 each.

For the nine months ended March 31, ArgoSystems’ earnings more than doubled to $6.3 million from $3.1 million in the previous year. Revenue rose 23.5% to $70.9 million.