N.Y. Company to Buy Ford Aerospace Corp.

Ford Motor Co. confirmed Monday that it has selected Loral Corp., a New York-based defense electronics giant, as the winning bidder to purchase its Newport Beach-based defense subsidiary, Ford Aerospace Corp.

The purchase price was not disclosed, but sources close to the negotiations said Loral will pay about $800 million in cash for Ford Aerospace and will assume certain other liabilities--such as retiree benefit payments and other debt obligations--which will boost the total value of Loral’s offer to about $1.3 billion.

Not included in the deal, however, is Ford Aerospace’s long-term lease on 99 acres of ocean-view real estate in Newport Beach where it has its corporate offices and one of its largest manufacturing operations, the 2,700-employee Aeronutronic missile manufacturing division. The land is owned by the Irvine Co.

A source close to the transaction said Monday that the buyer of Ford Aerospace would be required to vacate the property within five years.

A Ford executive who asked not to be identified confirmed that the lease was not included in the proposed sale to Loral.

Loral, the nation’s 19th-largest defense contractor, beat out two other teams of bidders, one that included El Segundo-based Hughes Aircraft Co. and another led by Westinghouse Electric Corp. in Baltimore.

When Ford Motor put its defense subsidiary up for sale on Jan. 12, it had sought cash bids of $1.2 billion. But sources said no bidders were willing to offer that much because of the downturn in defense spending.

Loral and Ford Motor stressed that the agreement is not yet final and is subject to regulatory approvals. Ford Motor said a final deal is expected within three months. Loral said financing for the acquisition has been completed.

“Loral’s offer was the best, financially, and meets all of our requirements,” Harold A. Poling, Ford Motor chairman and chief executive, said in a statement. “The sale is for the whole of Ford Aerospace Corp.--a fundamental objective for us throughout the sale process.”

However, some Wall Street analysts noted that Loral is only two-thirds the size of Ford Aerospace and may have to sell off certain operations to pay for the deal.

On Friday, officials of a Westinghouse Electric-led consortium pledged not to dismantle the company if Ford Motor chose it as the winning bidder. The consortium also includes the Carlyle Group, a private merchant bank, and Aerospatiale, a French aerospace firm. The pledge was viewed as an effort by the Westinghouse group to gain an advantage in the bidding by suggesting that Loral was likely to break up Ford Aerospace.

Michael Beltramo, a Los Angeles defense consultant and former Rand Corp. analyst, said he doubts Loral is interested in all of Ford Aerospace’s businesses. “I can’t imagine why Loral would want to get into the missile business. They don’t have anything in that area, and missiles is not a growth area. It’s really been decimated in the past few years.”

He speculated that Loral may have been mostly interested in Ford Aerospace’s satellite and space operations.

”. . . Maybe they saw a few interesting pieces (at Ford Aerospace) and thought they could get a dividend from the break-up value,” Beltramo said.

Industry observers speculated that if Loral does decide to sell part of Ford Aerospace, the most likely operations to be sold would be Ford’s missile and satellite divisions in California and its BDM International Inc. subsidiary, a Virginia-based engineering and consulting company that Ford Aerospace bought for $425 million in 1988.

But Elizabeth Allen, a Loral spokeswoman, said the company intends to continue to operate Ford Aerospace as it currently exists. “We don’t have any plans to break them up,” she said.

The future of the Aeronutronic division is clouded, ironically, by the rapid appreciation in the value of its real estate. Ford Aerospace’s lease on 99 prime, ocean-view acres runs through 2052, and the land could be worth up to $1.5 million an acre if developed with luxury housing.

Ford pegged the value of the lease at $75 million, one source said, and expects to sell it back to the Irvine Co. Another source said the current plan was to sublet the land to Loral, but he could not provide further details.

At the end of March, Loral reported that it had only $100 million in cash. Loral’s contribution to the Ford Aerospace acquisition alone will be $150 million. The New York investment firm Shearson Lehman Hutton Inc. will contribute another $150 million, and the remaining $500 million will be financed through bank borrowings.

In acquiring Ford Aerospace, Harris said, Loral would be fulfilling a long-stated goal of becoming a major manufacturer of weapons and communications systems, rather than only a supplier of components for such systems.

In other defense acquisitions, Loral acquired Goodyear Aerospace for $588 million in 1987, paid $58 million for Honeywell’s electro-optics division in 1989 and bought Fairchild Weston for $177 million, also last year.

Loral’s primary business is making electronic sensors for combat aircraft, which notify a a pilot when the aircraft has been targeted by enemy radar. The company also makes reconnaissance equipment, electronic countermeasure systems and missile guidance systems.

Sources said Loral will likely keep Ford Aerospace’s electronic warfare, intelligence and command control operations.

In December, Loral pleaded guilty in federal court to conspiracy charges in connection with the Pentagon’s Ill Wind procurement fraud investigation. It paid $10.5 million in fines and related claims.

Jack Martin, spokesman for Westinghouse in Baltimore, said Ford Motor notified the company that its bid for Ford Aerospace was turned down. The company had been teamed with the Carlyle Group investment firm and Aerospatiale of France.

“We are extremely disappointed with the decision, but we will continue to watch the situation,” Martin said.

In a letter to Ford Aerospace employees, Ford Motor said Loral’s businesses complement the operations of Ford Aerospace. Ford Motor also said Loral has agreed to maintain for two years the current compensation and benefit programs now received by Ford employees, including medical and life insurance benefits for current and future retirees.

Lawrence M. Harris, aerospace analyst at Bateman Eichler, Hill Richards in Los Angeles, said “(Loral’s management) has turned around acquisitions quickly and restored them to profitability. Ford Aerospace would be their biggest challenge to date.”

Loral will report its first-quarter results at its annual meeting today in New York. For its fiscal year ended March 31, the company reported earnings of $78.2 million on revenue of $1.27 billion, compared to earnings of $78.2 million and revenue of $1.18 billion a year earlier. Its backlog of orders, as of March 31, was nearly $2.1 billion, contrasted with $1.3 billion a year earlier.

NEWPORT PLANT IN LIMBO: Ford Aerospace’s sale clouds future of 2,700 employees. D1