Edited by Thane Peterson
Ending weeks of speculation, Raytheon Co. became the nation's third-largest defense contractor when it confirmed its purchase of GM's Hughes Electronics for $9.5 billion (see BW Online, 1/15/97, Raytheon May Win the Bidding War for Hughes).
The deal caps a seven-year buying spree by Raytheon Chairman Dennis J. Picard, who has added 18 new companies to build a behemoth big enough to buy GM-Hughes. If the deal goes through in the next few months, General Motors shareholders will wind up owning 30% of Raytheon's stock. Raytheon, which makes the Patriot missile, will have $21 billion in combined revenues and will have a roughly 80% share of the U.S. missile market.
But Picard's wheeling and dealing may not be over. The steep price Raytheon paid for Hughes landed the company on Standard & Poor's CreditWatch list, reflecting the company's "strained financial structure," according to S&P. In a press conference on Thursday, Jan. 16, Picard was vague about how much the company will gain in cost savings. Analysts believe Raytheon will soon spin off some of the company's valuable commercial businesses, including its engineering and construction unit, which could fetch $3 billion in an IPO.
There's another possible deal in Picard's future. Now that Northrop Grumman Corp. has lost the bidding contest for Hughes, it may be up for sale -- and Raytheon could be a bidder. Buying Northrop would make Raytheon not only more dominant in missile-making but also the nation's largest radar maker.
By Geoffrey Smith in Boston
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Copyright 1997, Bloomberg L.P.