Continuing its push to pare its heavy debt, Unisys Inc. announced plans Monday to spin off its defense unit through a public stock offering that could bring as much as $832 million to the struggling technology giant.
In a filing with the Securities and Exchange Commission, the nation's fourth-largest computer maker said it plans to issue 20 million shares of common stock in Paramax--its defense unit--at a projected price of $22 to $25 per share. After the sale is complete, Paramax would transfer another $332 million to its former parent, bringing Unisys' total potential proceeds to as much as $832 million.
However, analysts cautioned that President Bush's dramatic decision Friday to reduce the nation's nuclear forces as well as subsequent calls for additional defense spending cuts could sabotage the planned stock offering by severely depressing market valuations for defense stocks.
"Can you believe the timing?" quipped one Wall Street analyst. "This is hardly a great time for defense stocks."
The Paramax offering is Unisys' latest effort to slash the huge debt it took on in 1986 when the company was formed with the merger of the Sperry and Burroughs electronics companies. That debt, which reached a peak of $4.1 billion in mid-1989, has hindered the company's operations, resulting in huge employee layoffs and losses exceeding $1.1 billion over the last two years. Since early 1990, the company has sold off assets worth a total of $650 million, leaving its outstanding debt at $3.8 billion as of June 30.
Analysts were unsure Monday about the outcome of the proposed stock sale. "The defense business will be under tremendous stress given the recent moves by President Bush," said Barry Bosak, a technology analyst at Smith Barney in New York. "These are tough times for the defense industry."
However, Jay Stevens, a technology analyst with Dean Witter Reynolds Inc. in New York, said the electronics component of the defense industry--the specialty of Unisys--is likely to fare better. "Electronics in defense is viewed as a decent business because . . . if you're buying fewer ships and airplanes, electronics have to become more sophisticated to protect what you have."
Unisys Defense Systems, which generated about $2 billion of the corporation's $10 billion in revenue last year, makes such electronic devices as the navigation systems used in Trident submarines, computers for military ships and planes and specialized communications systems. The business, which has about 15,000 employees nationwide, is based in McLean, Va., a Washington suburb.
Unisys' most recent asset sale was completed last week, when it sold its computer-networking division, Timeplex Inc., for $207 million to a joint venture led by Ascom Holding AG of Switzerland. Unisys said it continues to look at other potential asset sales to reduce its debt.
Analysts said Unisys had originally hoped to sell its defense unit and had put the division on the sales block earlier this year. However, they said Unisys could not find a buyer willing to pay its asking price. Unisys declined to respond to those comments.
The unit had been under a cloud since the 1988 revelations that it was involved in the "Ill Wind" influence peddling scandal involving dozens of defense lobbyists, several Pentagon officials and a handful of aerospace companies. Unisys pleaded guilty Sept. 6 to charges of bribery, fraud, illegal campaign contributions and submitting false claims and agreed to pay up to $190 million, a record settlement.
A Unisys spokesman said the majority of the settlement would be paid by the corporation, but a portion of the fine would be repaid from profits generated by ongoing defense contracts that would become a part of Paramax. He said the terms of the settlement would be detailed in the prospectus for the stock offering, which is being prepared by Lehman Bros.