NEW YORK (CNNfn) -Raytheon Corp. won the battle Thursday to acquire the defense operations of General Motors' Hughes Electronics, agreeing pay $9.5 billion.
Raytheon, a Massachusetts-based maker of missiles and defense electronics, will pay $5.1 billion in stock for the unit, while also assuming $4.4 billion of Hughes' debt.
The deal was a blow to Northrop Grumman Corp., the nation's fifth-largest defense contractor, that had hoped to rise in the ranks of the defense industry's true giants through a merger with Hughes.
The combination of Raytheon and Hughes Aircraft, which will retain the Raytheon name, will create the world's third-largest defense contractor, trailing only Boeing Co. and Lockheed Martin Corp.
In declaring victory, Raytheon Chairman Dennis Picard said: "We are truly creating (a) defense-electronics powerhouse. Together, our combined businesses will have the critical mass needed to compete effectively in all of our global markets."
The merged entity will have approximately $21 billion in revenues, with more than $13 billion of that coming from defense electronics.
Defense analyst Nicholas Heymann at NatWest Securities said the companies are a perfect fit. (197K WAV) or (197K AIF)
Picard said that some jobs would be eliminated following the purchase, but it was not immediately clear how many.
Thursday's deal represents just the latest move in a rapid consolidation of the U.S. defense industry, prompted by the Cold War's end and resulting American defense cuts.
Earlier this month, Raytheon announced plans to buy Texas Instruments' missile and defense-electronics units for $2.95 billion.
"It is clear that the end of the Cold War and the resulting decline in the U.S. defense ... budget, have brought about fundamental changes to the defense industry, requiring continued consolidation," Picard said in announcing Thursday's deal.
"The strategic combination of Raytheon, TI Defense and Hughes Defense enables us to address those changes head-on and to grow in the best segment of the defense business -- defense electronics," he said.
Said C. Michael Armstrong, chairman of Hughes Aircraft parent Hughes Electronics: "For Hughes Aircraft to remain competitive in a shrinking market, there was a need to increase its participation in the industry consolidation. Raytheon together with Hughes will create a much more competitive company."
The parting of the operations allows GM to refocus on its core businesses. It had bought Hughes Aircraft for $5.2 billion in 1985, with talk of using Cold War technology to produce cars with radar-driven controls and fighter-jet instrument displays.
But Hughes' big success in defense conversion has been in the booming commercial satellite field, including cellular communications and the DirecTV broadcast service.
-- Randy Shultz