Chrysler Back in Defense Business : Auto Maker to Acquire Texas Company for $367 Million

Chrysler Corp. announced Friday that it is getting back into the defense business after six years, unveiling an agreement to buy Richardson, Tex.-based Electrospace Systems Inc. for $367 million.

The electronics company’s board unanimously recommended that shareholders accept Chrysler’s $27-a-share offer, and Electrospace’s four founders gave Chrysler an option to buy their 38% stake. The company has about 4,000 stockholders, who own 13.5 million shares.

The offer is more than five times the company’s book value, although the stock had been trading higher on the New York Stock Exchange. Electrospace fell $3.37 1/2 a share to $26.75 on Friday, while Chrysler rose 50 cents to $36.12 1/2.

Electrospace, founded in 1970, earned $10 million on sales of $191 million in its fiscal year that ended April 3. About 96% of its business is defense-related, either with the government or with other contractors, said Robert Carrel, an Electrospace vice president and one of its founders.

The company, with 2,500 employees, has operations in Waco, Tex., and Washington, D.C. Its largest shareholder is its chairman and president, James R. Lightner, another of the founders.

Chrysler left the defense business when it sold Chrysler Defense in 1981, when the auto maker was struggling auto maker fought to stave off bankruptcy. It has rebounded on the strength of its cost-cutting efforts, acquiring the airplane maker Gulf Aerospace Corp. in 1985 and reaching an agreement to buy American Motors Corp. earlier this year.

Chrysler sees the defense electronics business as a growth area and a hedge against the ups and downs of the auto and private aircraft businesses, said Michael Lauer, auto analyst with Oppenheimer & Co. in New York.

Chrysler probably will continue to acquire small defense and technology related businesses rather than make one large, billion-dollar acquisition, Lauer said.

“Gulfstream and Electrospace are just pieces of a mosaic that Chrysler is trying to build,” Lauer said.

“Electrospace Systems is a quality, high-technology company with outstanding talent and know-how,” said Chrysler Chairman Lee A. Iacocca. “It will make a real contribution to Chrysler in the high-tech area, especially now that it is being teamed up with Gulfstream Aerospace Corp.”

Gulfstream, which Chrysler bought for $642 million, makes private jets. Electrospace, which makes and installs communications and electronics systems, modifies aircraft for military use.

The two companies will be run as separate entities and Electrospace’s management will remain, Chrysler said.