Hughes Nears Deal to Acquire Missile Plants : Aerospace: An accord with General Dynamics could affect thousands of workers in Southern California.

Hughes Aircraft is in final negotiations to acquire General Dynamics’ missile business in Pomona and San Diego, a deal that would make Hughes one of the world’s largest tactical missile firms, industry sources said Wednesday.

General Dynamics Chairman William Anders told shareholders Wednesday at the firm’s annual meeting that it is “now entering the final phase of negotiations for the sale of our missile business and could well announce a transaction in the near future.”

Anders did not identify the company in those talks, but sources at Hughes and General Dynamics said the negotiations at this stage are mainly with Hughes and that other prospective bidders have moved to the sidelines.

The Times reported last month that General Dynamics, the nation’s second-largest defense contractor, was also talking with Raytheon. Late Wednesday, Raytheon issued a statement saying that General Dynamics was “currently negotiating with another party.”

A Hughes corporate spokesman said the firm has a policy of not commenting on prospective acquisitions. But several key executives from the firm’s missile unit, headquartered in Canoga Park, were in San Diego at General Dynamics facilities, according to Hughes sources.

A key Hughes insider said the two firms are discussing alternatives to an outright sale of the General Dynamics missile business, including a potential merger of the two firm’s missile businesses that would be spun off into a jointly owned independent subsidiary.

But General Dynamics sources said the firm was leaning toward a sale. Anders said Wednesday that General Dynamics “could not achieve sufficient market position to be the leader” in the highly competitive missile business.

The General Dynamics missile business is worth an estimated $450 million, according to Lawrence M. Harris, an aerospace analyst at Kemper Securities Group Inc.

Harris said the value is somewhat discounted, because three of General Dynamics’ key missile programs are being phased out.

A merger of Hughes and General Dynamics operations would have broad effects on the U.S. defense industry and potentially significant ramifications for thousands of workers in Southern California.

General Dynamics has 5,100 employees at its air defense systems, mostly at its Pomona headquarters, and another 4,500 employees at its cruise missile operation in San Diego.

Meanwhile, Hughes employs 7,500 people in its missile operation, about 2,000 of whom are in Canoga Park, a spokeswoman said.

General Dynamics is San Diego’s largest private employer. The city’s three General Dynamics divisions--Convair, Electronics and Space Systems--make missiles, commercial jet fuselages, Army radios and other electronics and space vehicles.

Under the scenario outlined by Anders, the space business would be the only San Diego operation kept, and the other businesses would be sold.

Both Hughes and General Dynamics have significant unused factory capacity, and they expect declines in many of their missile programs, meaning that a consolidation of those facilities could be a logical outcome of a merger, executives said.

The General Dynamics missile business earned $76 million on sales of $1.4 billion in 1991. Hughes does not disclose sales of its missile unit, but Harris estimated them at $1.3 billion.

Raytheon has missile sales of about $2.5 billion, Harris said. If Hughes acquires the General Dynamics units, it would pull even with Raytheon.

Separately, Hughes last month agreed to buy a 15% position in LTV’s missile business, which is being acquired by Thomson, a French concern. The acquisition by Hughes, a unit of General Motors, has surprised some analysts given the financial problems at GM.

If Hughes acquires the General Dynamics units, it would significantly broaden the firm’s product. Hughes has historically been a leader in air-to-air missiles for the Air Force used in dogfighting between fighter jets.

Hughes makes the Phoenix and Amraam air-to-air missiles, the TOW antitank missile and the Maverick antitank missile.

By contrast, General Dynamics is a leader in Navy missiles, producing the Standard air defense missile for ships and the Sparrow air-to-air missile.

It also produces the Stinger shoulder-fired antiaircraft missile. In San Diego, it makes the advanced cruise missile and the Tomahawk cruise missile.

Executives say that a General Dynamics and Hughes combination would create a formidable technological combination, giving the new firm superiority in infrared missile technology and a competitive level of technology in radar missiles.