Loral Corp. agreed Monday to buy Goodyear Aerospace for $640 million in cash, a deal that will about double the size of New York-based Loral and establish it as the largest independent electronic warfare contractor.
Goodyear Aerospace, a subsidiary of Goodyear Tire & Rubber, makes a wide range of defense products, ranging from advanced aircraft electronics to undersea mines. It posted $55 million in pretax earnings on sales of $695 million in 1986.
Loral Chairman Bernard Schwartz said in an interview that the Goodyear acquisition marks a major step in his firm's strategy of continuing to grow in the defense electronics industry. Loral specializes in producing advanced electronics for jet fighters.
Loral has been shopping for a large acquisition since losing out to Lockheed in a bidding war last year for Sanders Associates, another defense electronics producer. Lockheed eventually bought Sanders for $1.2 billion.
Financial analysts said Loral, in the deal announced Monday, struck a much more attractive bargain than Lockheed obtained with Sanders, which is roughly the same size as Goodyear Aerospace. In addition, Goodyear is solidly profitable, whereas Sanders was losing money when Lockheed bought it.
"This is another brilliant coup by Bernard Schwartz," said Robert Hanisee, an analyst at Seidler Amdec Securities. "If he can get (Goodyear's) margins up, he'll have a bonanza on his hands."
An ebullient Schwartz remarked, "We lucked out that we didn't get Sanders. This gives us a much broader array of technology, and the price is significantly less."
Goodyear put its aerospace unit up for sale after it took on substantial amounts of debt last year to repurchase stock that was accumulated by European corporate raider Sir James Goldsmith.
Goodyear Aerospace has grown at a rate of about 14% annually during the past five years, and Loral expects the unit to generate sales of $800 million by 1990.
If Goodyear reaches that sales level and Loral can duplicate its past success of raising the profit margins of companies it acquires, then the Goodyear deal will prove to be highly profitable, Hanisee said. He estimated that the deal could add as much as $36 million to Loral's pretax profit by 1990.
High Pretax Margin
Loral has a pretax profit margin of about 14%, one of the highest in the defense industry. It has achieved that in large part by avoiding serious technical problems in its programs, a significant achievement for a defense contractor specializing in high technology, Hanisee said.
As a result of the acquisition of Goodyear Aerospace, Loral will have an annual revenue base of $1.6 billion--90% concentrated in military electronics. Its combined backlog for the fiscal year beginning April 1, 1987, will be approximately $2 billion.
Loral said it expects Goodyear will continue to operate under its existing management at its principal operations at Akron, Ohio; Phoenix, and Rockmont, Ga.
Schwartz said he has no plans to divest the non-electronics operations of Goodyear Aerospace, which generate approximately $200 million in annual sales. Among other things, the unit is the Pentagon's largest contractor for aircraft brakes.