Ford Motor Co. confirmed Monday that it has selected Loral Corp., a New York-based defense electronics giant, as the winning bidder to purchase its Newport Beach-based defense subsidiary, Ford Aerospace Corp.
The purchase price was not disclosed, but sources close to the negotiations said Loral will pay about $800 million in cash and will assume certain other liabilities--such as retiree benefit payments and other debt obligations--that will boost the total value of its offer to about $1.3 billion.
Not included in the deal, however, is Ford Aerospace's long-term lease on the 99 acres of ocean-view real estate in Newport Beach where it has its corporate offices and one of its largest manufacturing operations, the 2,700-employee Aeronutronic missile manufacturing division. The land is owned by Irvine Co.
A source close to the transaction said Monday that the buyer of Ford Aerospace would be required to vacate the property within five years.
In addition, several analysts said Loral would likely sell Aeronutronic in any event because missiles do not fit well with New York-based Loral's existing businesses. Without the valuable Newport Beach leasehold, Loral would in effect be selling Aeronutronic's contracts, and analysts speculated they would probably go to another missile vendor, possibly El Segundo-based Hughes Aircraft Co.
A Ford executive who asked not to be identified confirmed that the lease was not included in the proposed sale to Loral.
Loral, the nation's 19th-largest defense contractor, beat out two other teams of bidders, one that included Hughes Aircraft and another led by Westinghouse Electric Corp. in Baltimore.
When Ford put its defense subsidiary up for sale on Jan. 12, it had sought cash bids of $1.2 billion. But sources said no bidders were willing to offer that much because of the downturn in defense spending.
Loral and Ford Motor stressed that the agreement is not yet final and is subject to regulatory approvals. Ford said a final deal is expected within three months. Loral said financing for the acquisition has been completed.
"Loral's offer was the best financially and meets all of our requirements," Harold A. Poling, Ford Motor chairman and chief executive, said in a statement. "The sale is for the whole of Ford Aerospace Corp.--a fundamental objective for us throughout the sale process."
However, some Wall Street analysts noted that Loral is only two-thirds the size of Ford Aerospace and may have to sell off certain operations to pay for the deal.
On Friday, officials of a Westinghouse Electric-led consortium pledged not to dismantle the company if chosen as the winning bidder. The consortium also included the Carlyle Group, a private merchant bank, and Aerospatiale, a French aerospace firm. The pledge was viewed as an effort by the Westinghouse group to gain an advantage in the bidding by suggesting that Loral was likely to break up Ford Aerospace.
Michael Beltramo, a Los Angeles defense consultant and former RAND Corp. analyst, said he doubts that Loral is interested in all of Ford Aerospace's businesses. "I can't imagine why Loral would want to get into the missile business. They don't have anything in that area, and missiles are not a growth area. It's really been decimated in the past few years."
He speculated that Loral may have been mostly interested in Ford Aerospace's satellite and space operations.
"Loral is one of the three smartest-managed defense contractors in the country," he said. "Maybe they saw a few interesting pieces (at Ford Aerospace) and thought they could get a dividend from the break-up value."
Industry observers speculated that if Loral does decide to sell part of Ford Aerospace, the mostly likely operations to be sold would be Aeronutronic and a satellite division in California, plus the BDM International Inc. subsidiary, a Virginia-based engineering and consulting company that Ford Aerospace bought for $425 million in 1988.
But Elizabeth Allen, a Loral spokeswoman, said the company intends to continue to operate Ford Aerospace as it currently exists. "We don't have any plans to break them up," she said.
The future of Aeronutronic is clouded, ironically, by the rapid appreciation in the value of its real estate. Ford Aerospace's lease on 99 prime, ocean-view acres runs through the year 2052, and the land could be worth up to $1.5 million an acre if developed with luxury housing.
Ford pegged the value of the lease at $75 million, the source said, and expects to sell it back to Irvine Co.
At the end of March, Loral reported that it had only $100 million in cash. Loral's contribution to the Ford Aerospace acquisition alone will be $150 million. The New York investment firm Shearson Lehman Hutton Inc. will contribute another $150 million, and the remaining $500 million will be financed through bank borrowings.