Rockwell Will Buy Brooktree for $275 Million
Rockwell International Corp., continuing to move away from its defense and aerospace heritage toward high-tech electronics, agreed Monday to acquire computer chip manufacturer Brooktree Corp. for about $275 million in cash.
Brooktree, based in San Diego, makes chips that help computers process graphics, text and sound--tasks that are becoming increasingly important as more PC users turn to their machines as tools of communication and commerce, as well as sources of entertainment.
Rockwell, based in Seal Beach, agreed to pay $15 a share for Brooktree, or about 43% more than the company’s closing price of $10.50 a share Friday. Brooktree had fiscal 1995 sales of $138 million, and the company employs 575 people in North America, Europe and Asia.
Brooktree would become part of an expanding group of electronics operations at Rockwell, a company that is perhaps best known as builder of the space shuttle fleet but one that in recent years has reduced its dependence on aerospace and defense by concentrating on commercial products. For instance, Rockwell’s Semiconductor Systems unit now supplies half of the world’s modems.
Dwight W. Decker, president of the Newport Beach-based Semiconductor Systems unit, said the Brooktree acquisition is part of Rockwell’s strategy to continue grabbing a larger share of the market for devices that let computers talk to one another.
“We want to make the PC a richer communications product over time,” Decker said. “If it’s video as well as voice and data over a telephone line, we want to be able to provide all the semiconductors plus the software to make that happen.”
Semiconductor Systems has posted enormous growth in recent years. Decker said the unit’s sales have soared from $800 million in fiscal 1995 to an expected level of about $1.5 billion this year, accounting for more than 10% of Rockwell’s total revenue.
Decker added that no layoffs are planned at Brooktree, whose chips were key components of the first generation of color monitors introduced in the mid-1980s by Apple and other computer makers. Brooktree also makes voice-compression chips that streamline the flow of telephone traffic across the Atlantic Ocean.
James A. Bixby, chief executive at Brooktree, would remain with the company as president. He said Brooktree would now be able get many of the components it needs for its products from Rockwell, saving money by reducing the company’s reliance on outside suppliers.
Industry analysts said the deal is consistent with Rockwell’s commercial focus, and expands Rockwell’s reach from devices that transmit computer graphics and sound into devices that then process such data.
“This fits very well,” said Paul Nisbet, an analyst at JSA Research Inc. in Rhode Island. “It takes them from digital transmission into the video and multimedia areas where they had not been before.”
The transaction, subject to regulatory approval, is expected to close later this year. At that time, Rockwell said, it will take a one-time charge of $120 million related to intangibles included in the purchase price, such as the value of research and development at Brooktree.
Over the last decade, Rockwell has replaced about $4 billion worth of annual defense and government revenue with commercial business. During that time, Rockwell has sold 27 operating units, and recently was reported to have begun seeking a buyer for its remaining defense and aerospace operations.
The company has refused to comment on those reports. Executives acknowledge Rockwell’s future will be concentrated on commercial markets, although the company is competing with McDonnell Douglas Corp. and Lockheed Martin for a $900-million NASA contract to produce a prototype for a reusable launch vehicle to replace the space shuttle fleet.
In a separate announcement, Brooktree said it expects its sales and net income for the third fiscal quarter, which ended Saturday, to fall below analysts’ estimates because of slow sales of graphics and communications products. The company said it expects to report third quarter sales between $30 million and $32 million, and a pretax operating loss between $2 million and $3 million.
Decker said Rockwell is aware of Brooktree’s expected third-quarter results.
Brooktree’s stock jumped sharply in active trading on the Nasdaq market, closing at $14.25 a share Monday, up $3.75 a share. Rockwell’s stock fell 62.5 cents to close at $56.75 a share on the New York Stock Exchange.
(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)
Latest Addition
Brooktree Corp. will join Rockwell International as a division of Rockwell Semiconductor Systems, based in Newport Beach.
Brooktree Corp. at a Glance
Headquarters: San Diego
Founded: 1981
Business: Integrated circuits for computer graphics, multimedia and communications applications
President/CEO: James A. Bixby
1995 sales: $138 million
1995 net income: $13 million
Purchase price: $15 a share or $275 million cash
Employees: 575
* Rocketing Sales
Rockwell Semiconductor Systems is Rockwell International’s fastest-growing business segment. Its sales are projected to reach $1 billion this year. Annual sales, in millions:
1996*: 1,000
* Projection
Source: Rockwell International Corp., Hoover’s Handbook; Researched by JANICE L. JONES / Los Angeles Times
