General Dynamics to Buy Gulfstream

Flying back into the civilian airplane market, defense contractor General Dynamics Corp. said Monday it will buy Gulfstream Aerospace Corp., the Savannah, Ga.-based maker of luxury business jets, for about $4.6 billion.

The one-for-one stock swap furthers General Dynamics’ goal of expanding beyond its core naval and armored vehicle defense businesses.

The purchase announced Monday also gives General Dynamics an immediate income source--$4.1 billion in firm orders Gulfstream plans to deliver through 2007. Gulfstream controls about 60% of the world market for business jets.

The deal, initially priced at $5.3 billion when announced, dropped in value as General Dynamics stock plummeted $6.19, to close at $65.25 Monday on the New York Stock Exchange. Gulfstream stock rose $6.06 to close at $61.69, also on the Big Board, as investors took advantage of the premium offered while bidding General Dynamics stock down.

General Dynamics, based in Falls Church, Va., was blocked last month in a bid to acquire Newport News Shipbuilding Inc. after the Pentagon cited concerns about its dominance in the field.

Gulfstream Chief Executive Theodore Forstmann said the merger is appropriate for the company because it would offer Gulfstream--which he will continue to manage--access to General Dynamics’ resources and a chance to expand.

Gulfstream, which had 1998 revenue of $2.4 billion, employs 7,800 people at plants in Long Beach, Savannah, Oklahoma City and Mexico.

The acquisition moves General Dynamics back into civilian aircraft seven years after it sold Gulfstream rival Cessna to Textron for $600 million. Chabraja called that sale, which occurred before he was named chief executive, a mistake.

“It’s not a decision that I embrace as one of the great moments in GD history,” he said. “It was driven by the economics of the moment. . . . But we’ve moved up, haven’t we? This is really the market leader, and it’s where I want to be.”

Gulfstream’s flagship is the $38-million Gulfstream V, which can fly nonstop from New York to Tokyo and Los Angeles to London. It also sells the smaller, $28-million Gulfstream IV.

Both have become popular among Fortune 500 executives and Hollywood celebrities. Gulfstream has sold its planes in 50 countries and to 34 governments.

The boards of both companies have approved the merger, though it is subject to shareholder and regulatory approval.

General Dynamics has 29,000 employees and earned $364 million in 1998 on $5 billion in sales.