Raytheon to Buy Two Chrysler Businesses

Raytheon Co. said Monday that it will buy Chrysler Corp.’s defense electronics and aircraft modification units, reinforcing its commitment to defense businesses.

The deal furthers an industry trend toward consolidation. It also underscores Chrysler’s commitment to refocus on its core automotive business. The No. 3 auto maker has in the last few years sold off several businesses not directly related to the building of cars and trucks.

According to the deal, Raytheon would pay $455 million in cash and a $20-million dividend to acquire Chrysler Technologies’ Electrospace Systems Inc. and Airborne Systems Inc. divisions, both based in Texas.

Raytheon will merge the two units with E-Systems, a Texas-based defense electronics business it bought last year for $2.3 billion.

The combination will make Raytheon the leader in the thriving airplane modification market and the “head-of-state” aircraft business--that is, modifying airplanes to make them secure command posts, similar to the way Air Force One is, an analyst said.

“This acquisition justifies their acquisition of E-Systems,” said Michael Culver, a defense industry analyst with First Equity Development Inc. in Stamford, Conn. “They’re the leader in this business right now--integration of high-tech aircraft modifications with the focus on electronics.”

On the New York Stock Exchange, Raytheon shares were off $1.125 at $51.50, and Chrysler shares were down $1.625 at $61.75.

Raytheon officials said the deal shows the Lexington, Mass.-based company’s commitment to being a major player in the shrinking U.S. defense industry, even as it shifts toward civilian business, which now account for 60% of its revenue.

“It solidifies our standing as a top-tier defense company,” said Lowell Lawson, chairman and chief executive of E-Systems.

There is little overlap between the Chrysler subsidiaries and E-Systems, Lawson said, so he does not expect the deal to result in plant shutdowns or major layoffs. Some administrative jobs could be cut, however, he said.

The two Chrysler divisions brought in about $500 million in revenue in 1995, and they are estimated to be growing at about 20% a year. Raytheon will take no special charges against earnings for the purchase, expected to close in the second quarter.

The divisions’ strength notwithstanding, analysts said the time is right for Chrysler to divest because defense electronics companies command a good price right now.

Electrospace is based in Richardson, Texas, and has 1,100 employees. It makes electronic warfare and secure communications equipment for government and military use, including systems to encrypt voice and data transmissions.

Airborne Systems is based in Waco, Texas, and has 1,800 employees. It designs and installs aircraft modifications for defense and commercial clients. In addition to designing and building head-of-state airplanes, it also modifies and updates older military aircraft.

E-Systems is based in Dallas and employs about 16,000 people. It had sales of about $2 billion last year in military intelligence communications.