McDonnell Douglas May Sell Off Missile Unit : Aerospace: The firm is reportedly talking with several competitors about the St. Louis-based division.

McDonnell Douglas is in preliminary discussions with several major aerospace firms concerning a possible sale of its St. Louis-based missile business, an investment industry source said Monday.

A McDonnell spokesman said the firm “would not respond to rumors of acquisitions or divestments.”

Hughes Aircraft, Raytheon, Martin Marietta and Texas Instruments are believed to have had contact with McDonnell, according to the source.

Spokesmen for all four firms said they would not comment on the matter.

McDonnell disclosed in January when it reported its 1992 fourth-quarter results that it intends to sell assets worth $500 million this year, though it has never publicly declared that its missile business is up for sale.

McDonnell Chairman John McDonnell said last year that the firm would sell or otherwise divest business units that do not rank No. 1 or No. 2 in size and profitability within their industries.

The McDonnell missile business has estimated sales of nearly $1 billion and is regarded as highly profitable by securities analysts. By contrast, Hughes Aircraft and Raytheon, the two missile industry leaders, have sales of $2 billion and a broader scope of programs.

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The investment industry official said McDonnell has been discretely offering the missile unit, as though they are ready “to allow somebody to make them sell it.”

Wolfgang Demisch, aerospace analyst at UBS Securities, said such a sale “seems plausible” and would help the company strengthen its financial condition, thereby improving its stock value. Demisch said the unit might fetch a somewhat higher price than the standard going rate of 50 cents per dollar of sales--implying that it could be worth $500 million.

McDonnell’s missile business is concentrated in cruise missiles. It builds the advanced cruise missile, the Tomahawk cruise missile and the Harpoon anti-ship missile at facilities close to the firm’s Lambert Field aircraft plant in St. Louis.

The advanced cruise missile program was canceled last year and the final missile will be delivered to the Air Force later this year. McDonnell competes with Hughes Aircraft for a share of the Tomahawk program and won 60% of the orders in the most recent competition.

In its 1992 annual report, McDonnell said its missile business stood out “in improved financial performance.”

McDonnell has also been attempting to sell its helicopter unit or set up a joint venture with another helicopter manufacturer. So far, none of the other three major military helicopter producers has indicated interest, industry sources said.

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One securities analyst said McDonnell’s consideration of selling the missile business could be the result of an inability to sell the helicopter unit and the company’s continuing need for cash to reduce its heavy debt load.

Securities analysts said a sale of the business “makes a lot of sense,” though the firm reorganized its missile business last fall.

If McDonnell does divest the operation, it would be another step toward an industrywide consolidation of the missile business. LTV sold its missile business to Martin Marietta and General Dynamics sold its missile unit to Hughes Aircraft.