Ford Aerospace Buyer Will Sell BDM Subsidiary
Although its purchase of Ford Aerospace Corp. is not yet complete, Loral Corp. said Tuesday that it will sell the defense consulting firm BDM International Inc., the largest subsidiary of Ford Aerospace, to the Carlyle Group of Washington for $130 million.
The purchase price is less than a third of the $425 million that Ford Motor Co., parent company of Ford Aerospace, paid for BDM when it bought the McLean, Va., firm in 1988. Analysts said the sharply lower price reflects Pentagon spending cuts that have depressed the value of defense-related businesses.
Walter Peterson--an analyst for the Baltimore investment bank Ferris, Baker Watts--said consulting companies have generally been selling for about 30% of their revenue. Based on that criteria, he said, Loral is getting a premium price for BDM.
The Carlyle Group, along with partner Westinghouse Electric Co., was one of several groups that bid unsuccessfully for all of Ford Aerospace. Carlyle said it will name former Defense Secretary Frank C. Carlucci as chairman of BDM.
After announcing plans to buy Newport Beach-based Ford Aerospace in July, Loral Chairman Bernard L. Schwartz said his company has no plans to divest any of Ford’s operations. Some analysts speculated, however, that the New York-based defense electronics company would sell some Ford divisions to help defray part of the $715-million acquisition price.
Schwartz said Tuesday that the BDM sale “is an exception to Loral’s intent to keep the operations of Ford Aerospace intact.”
He said BDM’s professional services and consulting businesses do not mesh well with Loral or Ford’s principal businesses.
BDM is a well-known defense think tank that performs policy analysis, computer software services and consulting for defense projects. It had 1989 sales of $342 million and earnings of more than $20 million. It employs 3,100 people.
In an interview Tuesday, Schwartz said BDM management first suggested the sale, arguing that the combination of Loral and BDM could create conflicts of interest. BDM managers were concerned that BDM would perform consulting work on contracts for which Loral might later bid. Federal law prohibits, for example, a defense contractor from drawing up specifications for a new weapons program then bidding for a production contract on the same program.
Under the agreement, Carlyle will pay $115 million in cash and $15 million in notes and warrants for BDM. Loral said it expects to complete the BDM sale after completing its purchase of Ford Aerospace in mid-October.
Some analysts said that despite Loral’s statements to the contrary, they would not be surprised if Loral divested other Ford Aerospace operations.
Michael Beltramo, a Los Angeles defense consultant, said he expects Loral to sell Ford’s Aeronutronic missile division in Newport Beach, which employs 2,700 people.
Loral has signed an eight-year lease for the 99-acre property on which the Aeronutronic unit is located. But the lease rate on the Irvine Co.-owned land rises from $52,000 a month to $1 million a month within five years. Beltramo said maintaining a manufacturing operation at those prices would be prohibitively expensive.
Founded three years ago, the Carlyle Group is partly owned by the R.K. Mellon family of Pennsylvania.
Carlyle officials said they anticipate no major changes in BDM’s operations. Carlucci, a secretary of defense under President Reagan, will be chairman of BDM. Earle Williams will remain BDM president and chief executive.
Carlucci said: “We regard BDM as an extraordinary professional services company and are pleased to have the opportunity to re-establish BDM as an independent company. I have known Earle Williams for many years and have the highest respect for him and the management team he has assembled.”