French-Backed Group Has Top Bid for LTV Unit : Aerospace: If regulators approve the $450-million offer by Thomson CSF and Carlyle Group, the missile operation would be the first U.S. defense firm owned by foreign interests.
The French defense contractor Thomson CSF and the U.S. investment firm Carlyle Group won a New York bankruptcy court auction Friday for LTV Corp.’s aerospace business with a $450-million offer.
U.S. Bankruptcy Judge Burton Lifland approved the offer over a rival bid from the team of Martin Marietta and Lockheed, which offered $75 million less. LTV, which ranked as the nation’s 17th-largest defense contractor last year, would become the first major U.S. defense firm to be held by foreign interests if the deal is confirmed by regulators.
Under terms of the offer, Thomson will pay $300 million to acquire LTV’s Dallas-based missile division, which produces a variety of attack and air defense missiles.
Thomson, backed by the French government, will operate the division as a separate subsidiary under a name that has yet to be determined. Hughes Aircraft will acquire a 15% stake in the missile operation.
Hughes leads a team including LTV and Thomson in a major missile program for the Strategic Defense Initiative. A Hughes spokesman said the firm anticipates the linkup will open further international business opportunities.
Meanwhile, Carlyle will pay $110 million in cash and $40 million in preferred stock and notes for LTV’s aircraft structures business, which produces portions of the B-2 bomber, C-17 military cargo jet and various Boeing commercial aircraft.
Despite widespread political concerns about foreign ownership of an American defense firm, Thomson had the backing of all of LTV’s creditor committees--not just the firm’s aerospace creditors, but those tied to its steel operations and pension plans.
To satisfy concerns about foreign ownership of LTV’s defense business, Thomson agreed to follow guidelines laid down by the U.S. government’s so-called special security agreement in setting up the new subsidiary’s board.
A special committee of the board, made up of U.S. directors, will review defense technology and export issues. The panel tentatively will include Malcolm Currie, former Hughes Aircraft chairman; Maxwell R. Thurman, a retired Army general, and Bob Parker, former head of LTV’s aerospace business.
The new subsidiary’s board also will include two directors from Thomson, one from Hughes and the balance from the management of LTV’s missile division, according to Rich Gelfond, a financial adviser to Thomson.
The Thomson bid now must pass what could be a 90-day review by a government regulatory body--the Committee on Foreign Investment in the United States.
Lifland’s decision is also subject to an appeal. Gelfond said that at least one creditor committee is unhappy with the Carlyle bid and is expected to appeal that portion of the decision. The committee wants LTV to retain the aircraft structures business.
Calabasas-based Lockheed issued a statement Friday saying, “We are deeply disappointed by Judge Lifland’s ruling. We will continued to monitor the situation closely and evaluate our options should Carlyle and Thomson fail to secure the necessary approvals. We also will continue to voice our concerns over the national security and economic issues raised by foreign ownership of the U.S. defense industrial base.”
A spokesman said he could not comment on whether Lockheed intended to file an appeal.
Lifland said he recognized the potential for the Thomson offer to be derailed on national security grounds, but added that the bidding process “has provided a significant lessening of those risks.” Thomson has agreed to put up a $20-million deposit and cover 70% of any costs for LTV if the government rejects the bid on national security grounds.
Thomson’s effort to buy LTV has evoked sharp political reaction from Congress, where more than 75 representatives have raised objections to the deal. The French government owns 60% of Thomson SA, which in turn owns a majority of Thomson CSF.
On Thursday, Sen. Daniel K. Inouye (D-Hawaii) said that if the Thomson/Carlyle team won the bidding, he would sponsor a resolution barring the Defense Department “from awarding contracts to this or any other foreign-owned defense company.”
Cash from the sale will be used to prop up LTV’s severely underfunded pension plans for its steel subsidiaries, which are $3 billion in the red. The sale is crucial to LTV’s efforts to reorganize and emerge from its six-year refuge in bankruptcy court.
Lifland, who had repeatedly criticized the Martin Marietta-Lockheed bid as too low, apparently found persuasive an accountant’s testimony that valued the LTV units as worth at least $488 million. The two U.S. defense contractors had planned to operate the businesses as Vought Corp.
“The Vought bid comes amid clear evidence and testimony that if it does come within the range of reasonableness, it scrapes the bottom,” Lifland said.
LTV: A Chronology 1947: Jim Ling starts Ling Electric Co. in Dallas.
1956: Ling buys L.M. Electronics of California, beginning series of acquisitions that eventually form Ling-Temco-Vought, the LTV Corp.
1967: LTV grows into $1-billion conglomerate with Vought Aircraft, Temco Electronics, Wilson & Co., Okonite Co.
1968: LTV acquires Greatamerica Corp., parent of Braniff Airways and National Car Rental. Its purchase of a stake in Jones & Laughlin Steel Corp. later that year leads to an antitrust suit by the Justice Department.
1970: Ling is deposed as chief executive and leaves LTV. Paul Thayer becomes CEO.
1983: Raymond Hay becomes CEO.
1984: LTV merges with Republic Steel Co., becoming the nation’s second-largest steel producer at the time.
1986: LTV files for Chapter 11 bankruptcy protection from creditors, burdened by $3 billion in underfunded pension plans related to steel operations.
1991: David Hoag becomes chief executive. LTV files a reorganization plan after losing a Supreme Court battle with the Pension Benefit Guaranty Corp. over liability for the underfunded pension plans.
January, 1992: LTV sells its AM General unit, maker of the Humvee military vehicle. The company moves to sell its aerospace and defense operations, which account for one-third of LTV’s $6-billion annual revenue.
April 10, 1992: Bankruptcy court approves the sale of LTV Corp.’s missile and aircraft businesses to Thomson CSF and the Carlyle Group for $450 million.
Associated Press and Reuters contributed to this story.
