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Shipbuilding deal floated
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April 25, 2001: 10:40 a.m. ET
General Dynamics hopes $2.1B bid for Newport News clears U.S. objections
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NEW YORK (CNNfn) - General Dynamics announced an agreement Wednesday to buy Newport News Shipbuilding for $2.1 billion, a deal that would create a shipbuilding powerhouse if it can win approval from regulators and the Pentagon.
General Dynamics (GD: down $2.11 to $72.00, Research, Estimates), the No. 4 U.S. defense contractor, will pay $67.50 in cash for each Newport News (NNS: up $8.05 to $63.10, Research, Estimates) share, representing a 23 percent premium to the stock's Tuesday closing price of $55.05, when shares were off 43 cents.
The deal is General Dynamics' second attempt in as many years to purchase its shipbuilding rival. General Dynamics' new offer is 75 percent more than its failed unsolicited bid of $38.50 a share in February 1999. That deal was blocked by Pentagon concerns about leaving the nation with only one builder of nuclear ships.
Falls Church, Va.-based General Dynamics also would assume about $500 million in Newport News debt.
General Dynamics said it does not believe there will be any layoffs as a result of the deal, and that it believes it will immediately add to earnings per share. Analysts surveyed by First Call had expected General Dynamics to earn $4.53 a share this year, up from $4.03 in 2000.
The deal also includes a $50 million break-up fee to deter other bidders. The defense sector has seen consolidation in recent months, sometimes with competing bidders surfacing after deals are announced.
Northrop Grumman Corp. (NOC: down $0.42 to $89.05, Research, Estimates) recently completed its acquisition of Litton Industries Inc., the largest builder of non-nuclear ships for the U.S. Navy.
General Electric Co. (GE: up $1.02 to $47.01, Research, Estimates) is seeking regulatory approval of its proposed acquisition of Honeywell International Inc. (HON: up $1.21 to $46.60, Research, Estimates), which it agreed to buy after a previous deal for Honeywell by United Technologies (UTX: down $0.90 to $75.60, Research, Estimates) had been announced.
The General Dynamics-Newport News transaction will receive intense scrutiny by both the Pentagon and federal antitrust authorities, but backers of the deal are hopeful the Bush administration will have a more relaxed attitude than the Clinton White House before it, according to a report in Wednesday's Wall Street Journal.
"Today, Newport News is the nation's sole supplier of aircraft carriers, and we're teamed with Electric Boat on the Navy's only new submarine program," Newport News Chairman and CEO William Fricks said. "Combining our companies will provide our customers with significant cost savings to support the nation's need to build more nuclear ships."
Separately, Newport News reported first-quarter results that sailed past forecasts. The company posted net income of $24 million, or 75 cents a share. Analysts surveyed by earnings tracker First Call had forecast earnings to edge up to 64 cents a share from the $21 million, or 63 cents a share, a year earlier.
Revenue rose 3 percent to $485 million. The company's order backlog increased to $6.9 billion from $4.1 billion a year ago, with the orders whose funding has already been approved by Congress increasing to $6.1 billion from $3.1 billion a year earlier. 
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