- The Washington Times - Wednesday, May 29, 2002

United Defense Industries Inc., the maker of the embattled Crusader howitzer, said yesterday it would buy U.S. Marine Repair Inc. for $316 million.
The acquisition, to be completed by the end of June, is expected to boost the Arlington company's revenues by $200 million for the rest of the year and increase profit by 5 percent to 10 percent annually, the company said.
U.S. Marine Repair, based in Norfolk, is the country's largest company specializing in repairing and modernizing non-nuclear ships.
Observers said the purchase will help United Defense recoup revenue that would be forfeited if the company loses its Army contract for the Crusader. While Congress has conveyed support for the $11 billion Crusader program, both President Bush and Defense Secretary Donald H. Rumsfeld have called for its termination.
"We've been working with Congress to make sure that when we spend money, we spend money on weapons systems that are needed, not weapons systems that have got nice politics attached to it," Mr. Bush said yesterday in Rome while meeting with NATO Secretary-General George Robertson.
The Crusader accounts for about 25 percent of United Defense's revenue.
"It sounds to me like [United Defense] is hedging their bets," said Christopher Hellman, a senior analyst with the Center for Defense Information, a nonpartisan military research group in the District.
Until now, United Defense has primarily been a maker of land-based military systems and weaponry, with minimal involvement in Navy or Coast Guard operations. U.S. Marine Repair is heavily involved in repairs and maintenance of the Navy's aging fleet of non-nuclear ships and lists several major cruise ship companies as customers. About 90 percent of its revenue comes from the U.S. defense budget, almost exclusively from the Navy and Coast Guard.
"This helps them diversify, and helps them build up for when ground systems are in weak demand," said Phil Finnegan, a senior analyst with the Teal Group, a defense consulting firm in Fairfax. "It makes some sense to build up naval maintenance."
Both United Defense and U.S. Marine Repair are partially owned by the Carlyle Group, a Washington buyout and investment firm formed by officials from the presidential administrations of Ronald Reagan and George H.W. Bush and headed by former Defense Secretary Frank Carlucci. Mr. Carlucci, the chairman, and managing partners Alan Holt and Peter Clair, United Defense directors, were excluded from negotiations.
United Defense will acquire U.S. Marine Repair almost exclusively through new debt. Moody's Investors Services said yesterday it may downgrade the company's debt rating if it can't eliminate the new and existing debt quickly.
United Defense reported income of $19 million in the most recent financial quarter, ending March 31, an increase of $13.9 million over the like quarter a year ago. Shares of the company rose 14 cents to close at $23.59 on the New York Stock Exchange yesterday.
Since an initial public sale of stock in December, shares of the company have risen about 24 percent, but they have fallen about $6 or 20 percent since April, when talk of eliminating the Crusader surfaced.
Closely held U.S. Marine Repair reported net income of $12.3 million and revenues of $431.7 million for the year ended March 31. In March, U.S. Marine Repair had announced plans for a public offering of its stock, but it scrapped those plans yesterday.
U.S. Marine Repair will become a unit of United Defense. Al Krekich, the current CEO of U.S. Marine Repair, would remain with the company, and no layoffs from either company are planned, the companies said.

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