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Boeing, MD to merge
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December 16, 1996: 9:04 a.m. ET
$13.3 billion deal will create the world's largest aerospace company
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NEW YORK (CNNfn) - The Boeing Co. and McDonnell Douglas Corp. announced on Sunday that they plan to merge in a deal valued at $13.3 billion that will create the largest aerospace company in the world.
The combined firm, which will operate in 27 states under the Boeing Co. name, is projected to have 1997 sales of about $48 billion, with roughly $28 billion from Boeing and $20 billion from McDonnell Douglas, industry sources said.
Together, the two companies have a combined order backlog worth $100 billion.
The stock-for-stock merger, announced in a surprise news conference Sunday afternoon, will have huge implications for the aerospace industry worldwide and in particular for Airbus Industrie, the four-nation European consortium that is the other major player in commercial aerospace.
"In the context of defense consolidation, … we think this is a good combination," said Phil Condit, president and chief executive officer of Boeing, speaking at Sunday's news conference. "Now is a good time where we can put these together profitably." (QuickTime movie, 1.5MB)
"I think it's particularly important as all the defense budgets around the world come under pressure that we have a balance," said Harry Stonecipher, president and CEO of McDonnell Douglas.
Condit will serve as the combined company's chairman and chief executive, while Stonecipher will be its president and chief operating officer.
One analyst lauded the merger as a solid move insuring "that Boeing will be able to make good on all of its orders for the next 20 years.
"Boeing's problem is, they have a lot of orders right now and they're using up all of their production facilities," Aviation Foundation President Darryl Jenkins said. "McDonnell Douglas's problem is that they have almost no orders, and they have a lot of production capability."
Not everybody agrees, however, that there are advantages to having fewer players in the aerospace game.
"What it's going to mean is some short-term gains, but a long-term disaster," said Lawrence Korb, an analyst at the Brookings Institute, a Washington think tank. "You're going to have less research and development as you get down to probably four major companies."
Under the terms of the transaction, McDonnell Douglas shareholders will receive 0.65 shares of Boeing common stock for each share of McDonnell Douglas common stock. Based on Boeing's closing price of 96-3/4 on Friday, the deal is estimated to be worth approximately $13.3 billion.
The transaction is subject to approval by the shareholders of both companies and regulatory agencies. It is expected to close as early as mid-1997, the companies said.
The new Boeing Co. will have about 200,000 employees, which includes the recent merger of Rockwell International Corp.'s aerospace and defense units into Boeing North American.
Boeing agreed to buy the units in August for $3.2 billion.
The company will operate in three major locations: the Puget Sound area of Washington, St. Louis, and Southern California. The Boeing Co. headquarters will remain in Seattle.
On the antitrust front, Condit said he did not think the merger of the two, which is expected to take about six months to complete, would be "a big issue." He added that the firms had not yet had discussions with the government on whether it will grant antitrust approval.
CS First Boston is representing the Boeing Company, and JP Morgan has been advising McDonnell Douglas.
Boeing already has a leading position in the worldwide commercial aircraft industry, historically holding a market share of about 50 percent and producing the 737, 747, 757, 767 and 777 passenger jets.
It is also a major defense contractor, producing such aircraft as the F-22 fighter and the Chinook and Comanche military helicopters.
St. Louis-based McDonnell Douglas is the third-largest commercial aircraft company and also produces many military aircraft, including the F/A-18 Hornet fighter, the C-17 Globemaster transport plane and the AH-64 Apache helicopter.
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