- The Washington Times - Tuesday, August 7, 2001

General Dynamics Corp., the Navy's largest shipbuilder, said yesterday it plans to buy a communications unit of Motorola Inc. for $825 million in cash, a deal that would boost the defense contractor's business with its government customers.

Motorola's Integrated Information Systems Group, based in Scottsdale, Ariz., supplies gear to the Department of Defense, the CIA and the National Aeronautics and Space Administration.

"It's a great fit," said Norine Lyons, a spokeswoman for the Falls Church company. "Our information systems and technology group, which is where this is going to fit, is a very fast-growing business."

The Motorola unit is the defense contractor's second purchase in the industry of computer and communication networks in two years.

The company bought three telecommunications businesses from GTE Corp. in 1999, for $1.05 billion, more than doubling its computer services revenue.

The new acquisition "is strategically a great fit," said Joseph Nadol, an analyst with J.P. Morgan Chase & Co. "Over the past five years [General Dynamics] has been realigning its defense business towards the higher growth end of the spectrum, which is defense electronics and specifically the communications-oriented business."

The Integrated Information Systems Group is expected to have sales of $830 million in 2002. General Dynamics also will assume some unspecified short-term debts, Ms. Lyons said.

General Dynamics posted profit of $901 million on sales of $10.4 billion last year.

The transaction, which was approved by both companies and must get regulatory approval, is expected to close within two months.

General Dynamics is still "cautiously optimistic" that it will close its purchase of Newport News Shipbuilding Inc. by Sept. 30, Chief Executive Officer Nicholas Chabraja said yesterday.

The acquisition, for $2.6 billion, would create a single maker of all U.S. nuclear submarines.

The Justice and Defense departments are studying the company's bid, as well as that of Northrop Grumman Corp., the contractor that bid for Newport News soon after General Dynamics.

According to a recent study by the nonpartisan Congressional Research Service, both deals pose antitrust issues in bidding on future contracts with the Navy.

If General Dynamics wins the deal, the new entity would receive 70 percent of the nation's military shipbuilding revenue and 95 percent of the U.S. Navy's research and development budget, the study found. It also would have more than 80 percent of the industry's in-house designers and engineers.

But Northrop's acquisition of Newport News is also problematic, because that deal would create the nation's only maker of large-deck mother ships for helicopters and amphibious vessels, the study said.

Each company has a backer in Congress: Senate Minority Leader Trent Lott, Mississippi Republican, has expressed support for the Northrop-Newport News deal. Meanwhile, Sen. John W. Warner, Virginia Republican and former chairman of the Senate Armed Services Committee, is backing General Dynamics' bid.

A week after General Dynamics bid for the shipbuilder, it announced its purchase of Galaxy Aerospace Co. LP for $353 million in cash. The deal, which closed in early June, expands the defense contractor's presence in the business jet market.

General Dynamics also bought Primex Technologies Inc., a Florida provider of munitions, propellants, satellite propulsion systems and electronics products, in November.

"They are very ambitious and growing like a weed through acquisitions," said Paul Nisbet, an analyst with JSA Research Inc., in Newport, R.I.

Shares of General Dynamics were unaffected by the news yesterday. The stock closed at $81.81, down 86 cents, or 1 percent, on the New York Stock Exchange.

Shares of Motorola moved little as well, closing at $18.60, down 3 cents.

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