Augustine Leads Marietta Corp. to Catbird Seat : Acquisition: Nation’s No. 8 defense contractor is sitting pretty after buying GE’s aerospace division.
Martin Marietta Corp. chairman Norman R. Augustine is used to breaking away from the pack.
While many defense industry executives went on an acquisition binge during the boom years of the 1980s, Martin Marietta focused largely on maintaining its profits.
Now, while many defense companies are downsizing, Augustine has entered into a $3-billion deal to buy General Electric Co.’s aerospace division, creating the world’s largest aerospace electronics company.
Augustine says it was easy to see the military buildup during the Reagan and Bush administrations eventually would end, and now it’s equally obvious the defense herd has grown too large.
“There’s not enough room in this industry for as many companies as there are today,” said Augustine, who joined Martin Marietta in 1977 and was elevated to chief executive officer 10 years later.
“It’s sort of like a game of musical chairs where there’s quite a shortage of chairs.”
The 57-year-old Augustine says he hopes the GE acquisition begins a restructuring of the industry that will result in fewer, but stronger defense companies.
The deal, announced last month, illustrates the varying approaches defense contractors are taking to deal with shrinking defense budgets, said George Podrasky, an analyst at Duff & Phelps Inc. in New York.
Some companies are electing to leave the arena if they have other businesses to fall back on, while others are refocusing and emphasizing their core defense strengths.
“In this transaction, you’ve got both sides. You’ve got GE putting their marbles in other places than defense, although if you read their stuff they still will have a hand in it,” Podrasky said. “Then you have Martin Marietta grabbing a bigger piece of a shrinking pie.”
At the same time, however, Augustine has taken steps to insulate the company from falling defense spending.
The Bethesda-based company, with more than $6 billion in revenue, is the eighth-largest defense contractor, according to the Pentagon. It also has become the third-largest producer of crushed rock in the nation after buying 13 quarries and opening 20 new ones in the last five years.
Martin Marietta has increased the non-defense portion of its total revenue from 23% in 1989 to 35% this year. By 1997, Martin Marietta hopes to generate more than half of its revenue from non-defense areas.
“In the year 2000, we will be a diversified high-tech company substantially larger than we are today,” Augustine said in a recent interview.
He said Martin Marietta will be involved primarily in astronautics, information systems and automation, missiles and electronics, construction materials, environmental and energy systems and one or two other major product lines.
“He has a vision for the company which is to be a technology leader, to participate in selective growth niches,” said Judith Bollinger, an analyst for Goldman, Sachs & Co. in New York.
Yet Augustine does not fit the image of the hard-driving executive. He doesn’t consider himself a workaholic, is an avid photographer and outdoorsman who has dog-sledded in Alaska. A vacation for Augustine usually takes place on the side of a mountain or rushing down a river in a raft.
Considered a giant in the aerospace industry, he was mentioned this spring as a candidate to replace fired NASA administrator Richard Truly.
In addition to previously serving as undersecretary of the Army, Augustine has served as the chairman of the Advisory Committee on the Future of the U.S. Space Program organized by NASA and the National Space Council.
Martin Marietta’s Titan rockets, which put satellites into orbit, are the company’s biggest business sector, expected to generate more than $1 billion this year. The company also is expected to receive another $700 million in revenue from the sale of Patriot missiles and a night vision system for F-15 and F-16 fighter planes, technology that enhances current aircraft and helps the Pentagon delay the purchase of new fighters.
Nonetheless, Martin Marietta hasn’t escaped entirely unscathed from the ongoing defense cuts.
The company announced this spring that it would cut 6% of its work force, or 3,600 of its 60,000 employees.
About half those jobs were expected to be cut from its astronautics division in Denver.
And earnings have been lackluster. Martin Marietta’s third-quarter profit fell to $96.1 million from $100.1 million last year despite a 7.6% increase in revenue. For the year to date, profits were almost flat at $269.7 million, compared to $269.1 million in 1991.
Wall Street, however, continues to give Martin Marietta a vote of confidence. The stock is now trading at a 52-week high on the New York Stock Exchange of around $63 a share. It sold for $35 a share in 1985, at the peak of the military buildup.
Augustine says he has learned from other defense contractors that have tried to bring technical innovations out of the lab and offer them to the public instead of finding out first what the consumer wants.
Defense contractors are best suited to dealing with large corporate or governmental customers in areas closely related to their core defense business, he said.
“We’ve spent a lot of years getting in the position we are today where we are generating a lot of cash,” he said. “Our success in the future will depend on how wisely we invest that.”
