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GE to Acquire Bay Area Maker of Bomb Detectors

InVision's scanners are used in 70% of major U.S. airports. Analysts applaud the $900-million cash deal.

March 16, 2004|Alex Pham | Times Staff Writer

Less than a week after coordinated bombings in Spain heightened fears of terrorist attacks, the world's biggest maker of bomb-detection machines for airports agreed Monday to be purchased by General Electric Co. for $900 million in cash.

InVision Technologies Inc., based in Newark, Calif., would become a cornerstone of GE's 2-year-old security business, which builds video surveillance systems and devices to detect explosive materials, company executives said.

InVision's CTX machines are deployed in 7 out of 10 major U.S. airports, and analysts expect demand for the $1-million scanners to continue to grow as long as the public is worried about terrorism.

"The bombings in Spain also show why there's going to continue to be growth in this market," said Chris Donaghey, an analyst with SunTrust Robinson Humphrey in Atlanta. "GE really jumped in at the right time."

A CTX machine, which is about as big as a minivan, uses technology similar to medical computerized tomography, or CT, scanners to check for the outlines and density of all types of explosives inside luggage. The technology should be familiar to GE, the world's biggest maker of CT machines for medical imaging.

Analysts said GE would be able to leverage its medical scanning and sensor research to improve upon InVision's technology.

"The cross-fertilization of ideas across businesses is great," said Marcy Yeamans, an analyst at Banc One Investment Advisors, which owns more than 28 million General Electric shares. "They should be able to save costs in research and development."

InVision, one of only two firms certified by the U.S. Transportation Security Agency to provide baggage scanners that search for bombs and other explosives, was spun off from a medical equipment maker in 1990 after terrorists bombed Pan Am Flight 103 over Lockerbie, Scotland.

It took four years and $30 million -- including an investment from the Federal Aviation Administration -- for InVision to win federal certification for its CTX machines. Although the government demanded nearly a decade ago that airline luggage be screened, little money was appropriated and most bags continued to go unchecked.

All that changed after the attacks of Sept. 11, 2001. Annual sales have surged from $74 million in 2001 to $417 million last year. Sales could have been higher, but the company didn't have the manufacturing capability to keep pace with demand. That allowed rival L-3 Communications Holdings Inc. of New York, the only other certified maker of airport bomb detectors, to boost its market share.

Analysts said they saw room for InVision to grow by selling its products for screening airplane cargo, which currently is subject only to spot checks. The company's machines could also be used to check carry-on bags.

In a conference call Monday announcing the acquisition, General Electric Chief Executive Jeffrey Immelt predicted that the market for security equipment would grow 20% a year for the next several years.

GE's offer of $50 a share represents a 21% premium over InVision's closing stock price Friday of $41.22.

InVision shares gained $8.13, or 20%, to close at $49.35 on Monday on Nasdaq. Shares of Fairfield, Conn.-based GE fell 30 cents to $30.30 on the New York Stock Exchange.

InVision makes its products in Newark, and 80% of its roughly 1,000 workers are in California. GE executives hinted at "modest" job cuts as a result of the integration, but InVision CEO Sergio Magistri predicted job gains in the long run as demand continues to grow.

"There is a desire to preserve our capabilities in the Bay Area," Magistri said. "As you grow the business, there will be opportunities for employment."

He did not elaborate on whether InVision's senior management would stay when the firm is bought by GE, a transaction that is scheduled to be completed during the second half of this year, pending approval by shareholders and regulators.

InVision will add about $420 million to GE's $1 billion in annual revenue from security businesses, the firms said. GE had 2003 sales of $134 billion.

Bloomberg News was used in compiling this report.

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