General Dynamics Corp. said Thursday that it will buy Bath Iron Works, one of the nation's oldest shipyards, for $300 million in cash.
The acquisition would give General Dynamics access to the privately held shipyard's backlog of about $2 billion in orders for Navy ships. At a time when new shipbuilding contracts are scarce, companies looking to expand their business must buy existing contracts.
"That's about the only way you can find growth in the defense business," said Byron Callan, an analyst with Merrill Lynch & Co.
Falls Church-based General Dynamics would bring a much-needed capital infusion to Bath Iron Works, which has struggled in recent years to adapt to the declining military budget. The shipyard in Bath, Me., which is owned primarily by Prudential Insurance Co. and the buyout firm Gibbons Goodwin & van Amerongen, cut 3,000 jobs from 1990 to 1994. It is still Maine's largest private employer, with 8,300 workers.
Prudential and Gibbons Goodwin paid an estimated $500 million for Bath in 1986.
Shares of General Dynamics surged $3 to $52.125. on the New York Stock Exchange.
For General Dynamics, the purchase is a departure from former Chief Executive William Anders' post-Cold War strategy of selling military units to increase shareholder value. The company sold its missile, rocket and fighter aircraft businesses rather than trying to convert them into commercial products.
Bath would add profit to General Dynamic's bottom line while bringing diversity to its submarine-building business, Callan said.
"It's a positive for General Dynamics and it's a positive for Bath," he said.
General Dynamics takes over a company immersed in the construction of the Arleigh Burke destroyer, one of the more robust Navy shipbuilding efforts under way. Construction of the destroyers is split between Bath Iron Works and Litton Industries Inc., based in Woodland Hills.