Westinghouse Electric Corp. said Friday it plans to sell its defense-electronics group to help pay the cost of its $5.4-billion purchase of CBS Inc. last month--a move that would remove another player from the shrinking defense industry.
The announcement was not entirely a surprise. Westinghouse, a diversified concern based in Pittsburgh, was expected to consider shedding its defense arm and other industrial assets after announcing plans to buy CBS and expand its broadcast interests.
Analysts speculated that the Maryland-based defense division--which makes radars for military aircraft and air traffic control, light missiles, air- and submarine-defense systems and torpedoes--could draw bids of $2.5 billion or more. Several of the possible bidders are defense firms based in Southern California.
"This is a hot property, and there are a lot of interested parties," said Jonas Stiklorius, who follows Westinghouse for the investment firm NatWest Securities Corp. in New York.
Before the CBS deal, defense and other electronics was Westinghouse's largest business. The unit accounted for $2.5 billion, or 28%, of the company's $8.8 billion in total sales last year.
The defense business has only one operation in California, a missile-propulsion group in Sunnyvale that employs 1,200 people. The defense group overall has 14,000 workers.
Bids to buy the unit are expected from other defense-electronics powerhouses, notably aggressive acquirer Loral Corp., along with Raytheon Co., Lockheed Martin Corp. and Los Angeles-based Hughes Electronics Corp., a unit of General Motors Corp., analysts said. There's concern that Hughes might run into antitrust hurdles, though, because it also is a leading maker of radar carried in military aircraft.
They said offers also could come from other defense contractors such as General Dynamics Corp., Los Angeles-based Northrop Grumman Corp., Seal Beach-based Rockwell International Corp. and Woodland Hills-based Litton Industries Inc.
Spokespeople for all of those companies declined comment on whether they would bid, or could not reached. Hughes spokesman Richard Dore noted, however, that "we are always looking at opportunities to grow the business."
Westinghouse's sale would mark the latest round in a rapid consolidation of the nation's defense industry in recent years. As Pentagon spending budgets have dwindled in the post-Cold War era, defense contractors have been merging to gain market share and wring out excess factory capacity.
In the biggest transaction so far, Lockheed Corp. and Martin Marietta Corp. merged last year in a $10-billion deal to create Lockheed Martin. Two of the firms that have exited the aerospace business in recent years are Ford Motor Co. and General Electric Co.
Indeed, Westinghouse Chairman Michael H. Jordan said in a statement that as the defense industry "has consolidated into larger, highly efficient players," the merger wave has now given Westinghouse the ability to "take advantage of the high premiums for defense-related assets."
Jordan said "a select group of major defense contractors" already have "expressed a strong interest" in the division, but he declined to name them.
He also said Westinghouse plans to sell a second, smaller business that was not identified, and that both properties would provide Westinghouse with between $3.2 billion and $3.5 billion to help pay off the debt incurred to buy CBS.
There was widespread speculation that the other property is Knoll Group, the company's office-furnishings division, and that it would fetch roughly $500 million. Westinghouse spokesman Roy Morrow declined comment on the reports.
The Westinghouse defense-electronics unit, though profitable, has seen its earnings and sales slip from two years ago because of the reduction in Pentagon spending.
Nonetheless, the division is considered "a very capable airborne radar house and is extremely competitive," said Paul Nisbet, an analyst at JSA Research Inc., an aerospace consulting firm in Newport, R.I.
Westinghouse also makes refrigeration equipment, nuclear energy and other power-generation systems, and provides government and environmental services.
Investors gave the proposed defense sale a lukewarm reaction. Westinghouse's stock fell 50 cents, to $17 a share, in New York Stock Exchange composite trading.
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Lines of Defense
The defense-electronics arm of Westinghouse Electric Corp., now up for sale, includes these programs:
Product Where It Goes Competitors Airborne F-16, F-22, B-1B, Hughes Electronics radar AH-64 Apache, and ITT AWACS aircraft Ground-based & Air defense systems Raytheon shipboard radar Surface vessels and ITT Submarines Torpedoes Submarines Hughes Electronics and Alliant Techsystems Light missiles Ground troops Raytheon, Loral and Hughes Electronics
Source: Company reports