- The Washington Times - Tuesday, June 10, 2003

Falls Church-based defense giant General Dynamics Corp. agreed to buy Veridian Corp. for $1.23 billion yesterday in a move to expand sales to the intelligence community.

Under the agreement General Dynamics, the fifth-largest U.S. defense contractor, will pay $35 per share for Veridian and assume about $270 million in debt.

Shares of General Dynamics fell $1.42, or about 2 percent, on the New York Stock Exchange yesterday.

General Dynamics Chairman and Chief Executive Officer Nicholas D. Chabraja said in a statement that the purchase would broaden the customer base of the company’s Information Systems and Technology group and provide a “strong and well-established presence throughout our nation’s federal, state and local emergency- response communities.”

The deal is expected to close by the end of the third quarter this year, pending approval by shareholders. The boards of directors of both companies have already approved the deal, which General Dynamics said would provide an immediate contribution to earnings.

Veridian, based in Arlington, is best known for supplying information technology to the government and also makes security and surveillance systems for many agencies. It said it expects sales of $1.2 billion in 2003. The company has been growing, with increased revenues in each of the last three quarters. This year, it won two major contracts from the National Reconnaissance Office and U.S. Air Force for as much as $40 million combined. Analysts said the capability of their sensors and communications systems were highlighted during the war in Iraq.

General Dynamics’ Information Systems and Technology group is the company’s largest division, registering about $3.68 billion in sales last year.

Veridian executives and most analysts said the $35 per-share price — nearly 30 percent more than Veridian’s closing share price Monday — is fair.

“The acquisition by General Dynamics not only provides significant value for our shareholders, but it enables Veridian to become an even more significant force in its markets,” Veridian President and CEO David H. Langstaff said in a statement.

Analysts said Veridian was attractive in part because 75 percent of its employees have a national-security clearance, which allows them to work on sensitive government programs. Furthermore, it adds to General Dynamics’ burgeoning technology business, which it has built up through a series of acquisitions over the last several years.

In March, General Dynamics bought Creative Technologies Inc., a Herndon company that makes computer systems to transfer classified information.

Merrill Lynch analyst Byron Callan said in a research note that the transaction would likely shield General Dynamics from exposure to the struggling business-jet industry. The company owns the popular Gulfstream jets.

General Dynamics, which said it expects $15 billion in revenue in 2003, is also known for producing the U.S. Army’s Abrams battle tank and is a leading supplier of ships and nuclear submarines to the Navy.

The purchase of Veridian is the second big acquisition by General Dynamics this year. It paid about $1.1 billion for General Motors’ defense business in March.

General Dynamics reported first-quarter 2003 earnings of $221 million ($1.11 per share), compared with $229 million ($1.13 per share) during the first quarter of last year.

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