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Raytheon Co. to Acquire Defense Electronics Firm : Aerospace: Analysts say the $2.3-billion price tag for ‘crown jewel’ E-Systems is high but fair.

From Times Wire Services

Raytheon Co. said Monday that it has agreed to buy E-Systems Inc. for $2.3 billion in cash, creating a $12-billion company and hastening consolidation in the defense industry.

“The merger of E-Systems and Raytheon is consistent with our strategy to remain a strong, diversified commercial company and a top-tier player in defense,” Dennis Picard, Raytheon chairman and chief executive, said in a statement.

Analysts said the $64-a-share offer is rich but fair, given the strengths the defense electronics company would bring to Raytheon. The offer is a 41% premium over E-Systems’ Friday closing price of $45.375 a share on the New York Stock Exchange.

E-Systems’ shares gained sharply on the news. They moved ahead $18.625 each to $64 in afternoon trading, while Raytheon shares fell $1.125 to $71.75 on the NYSE.

Dallas-based E-Systems makes electronic systems for commercial and defense applications, including military intelligence communications, surveillance systems, aircraft maintenance and information processing.

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“It’s important to note that Raytheon truly got one of the crown jewels in the industry,” said Jon Kutler, president of Quarterdeck Investment Partners, an investment bank that specializes in the aerospace and defense industry.

Raytheon said the deal, for which it has received up to $3 billion in financing commitments, should add a few cents to its earnings per share in 1995 and would be increasingly positive thereafter.

“What’s really terrific about this merger is that the businesses are very complementary and there is virtually no overlap,” Raytheon spokeswoman Elizabeth Allen said. “As a direct result of this merger, we do not anticipate layoffs.”

She said Raytheon is willing to pay the high price for E-Systems because its businesses are growing rapidly. Bookings at E-Systems grew $600 million in 1994 from 1993 and backlog work rose $500 million over the year, she said.

“We are buying a company that is growing its business in an environment where the budgets are going down,” Allen said.

Neither company has much presence in California.

Raytheon, a $10-billion concern with 60,000 employees based in Lexington, Mass., won national attention during the Persian Gulf war for its Patriot antimissile missile. It also makes Amana and Speed Queen appliances and light aircraft under the Beech and King Air names.

“Since many of their competitors are aggressively acquiring, it was very important for Raytheon to bulk up their business base in this area,” Kutler said.

Lowell Lawson would remain chairman and chief executive of E-Systems and would join Raytheon as an executive vice president and director. The E-Systems board would stay with the company and, together with Raytheon officials, would form a new advisory board.

The tender offer is subject to receipt of a majority of the E-Systems common shares outstanding and U.S. antitrust review. Unless extended, the offer is expected to close April 28, the companies said.

Analysts said the agreement includes a takeover penalty that would force any rival bidders to pay Raytheon $2 a share extra, or about $75 million plus expenses.


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