Few Firms Likely to Bid on Rockwell Divisions

Like a fisherman who has cast his line, Rockwell International Corp. has caused quite a ripple by offering its defense and aerospace units for sale. But who is likely to bite?

To begin with, there aren’t many fish left in the rough aerospace waters, which have been roiled by consolidation and mergers amid shrinking Pentagon budgets. And of those remaining, only a few are big enough to swallow Rockwell’s aerospace businesses, believed to be valued at $3.5 billion.

Senior industry sources have said that Rockwell, which wants to focus on its expanding commercial businesses, has had informal talks with prospective buyers of its aerospace group, though none has progressed to a serious stage. Rockwell has declined to comment.

But some giants, such as Lockheed Martin and Northrop Grumman, aren’t seen as likely bidders since they’re digesting other acquisitions. Aerospace analyst Wolfgang Demisch says GM-Hughes, among perhaps others, also may be dissuaded because they’re interested only in absorbing parts, not all, of Rockwell’s diverse aerospace lines, which makes missile systems, satellites and rocket engines.

According to analysts, then, the companies most likely to seriously consider Rockwell’s offering are McDonnell Douglas Corp. and Boeing Co.

Though neither company would comment Thursday, observers say both have good reason to pursue Rockwell’s aerospace assets. Both companies are looking to increase their space and defense businesses, both see technical fits with Rockwell, both have plenty of cash, and their share prices are at all-time highs.

“The issue is going to be basically price and terms,” said Demisch, of BT Securities in New York.

Bill Fiala, analyst at the St. Louis securities firm Edward D. Jones, said McDonnell Douglas has made it no secret that it is searching for a sizable acquisition. “That has been a consistent theme for the company for quite some time,” he said.

St. Louis-based McDonnell Douglas, which last year reportedly discussed a merger with Boeing, has enjoyed a dramatic comeback in the last couple of years. Still, the company’s principal business comes from defense projects, which analysts say are maturing and have relatively slow growth potential in the future.

“They would like to extend their current product base,” Fiala said.

Rockwell’s experience in producing B-1 bombers, for example, could bolster McDonnell Douglas’ standing as a leading maker of military planes. Other possible synergies would include Rockwell’s Rocketdyne unit in Canoga Park, which makes engines for McDonnell Douglas’ Delta rocket launcher. Rocketdyne’s space shuttle work would also bring some new business.

“The combination would give McDonnell Douglas enough critical mass to bring a lot to bear on programs coming up, like the space shuttle replacement,” said Richard Pettibone, an aerospace industry analyst at Forecast International in Newtown, Conn.

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Like McDonnell Douglas, Boeing is also competing against Rockwell to develop a prototype for a reusable launch vehicle--dubbed X-33--that might someday replace the shuttle fleet.

Rockwell’s space operations also hold appeal for Seattle-based Boeing, which is the prime contractor on the international space station in which Rockwell is heavily involved.

Peter Jacobs, a former operations manager at Boeing who now covers the company as an analyst for Ragen MacKenzie Inc. in Seattle, said Boeing would also like to be a greater force in defense electronics, which Rockwell could bring about.

But Jacobs believes that Boeing isn’t as acquisition hungry as McDonnell Douglas, because about 70% of Boeing’s business is commercial--and Boeing’s aircraft work is expected to remain strong in the next few years.

Still, “Boeing would like to increase its percent of business in defense” to cushion itself against the cycles of commercial work, said Bill Whitlow, director of research at Pacific Crest Securities in Seattle.

“There’s a lot of consolidation going on,” he added. “They need to get bigger.”