Kevin O'Toole/LONDON


HUGHES AIRCRAFT HAS won the bidding war for Magnavox Electronic Systems, marking another step in the US defence industry's increasingly frenetic consolidation.

The acquisition adds sales of more than $400 million to the Hughes defence-electronics business, as well as a production backlog of nearly $500 million. Magnavox also brings a workforce of around 3,000 in three plants, including its headquarters at Fort Wayne, Indiana.

Hughes beat off rivals with a bid of $370 million for the business, easily exceeding industry expectations that the bidding would stop at a price-tag of around $320 million.

The sale was made by the Carlyle investment group, which had acquired Magnavox two years ago for $165 million. The Hughes acquisition is still subject to US Government approvals.

Hughes Electronics chairman Michael Armstrong says that the acquisition is part of a drive to strengthen the company's core defence-electronics businesses.

The Magnavox product line, based on tactical communications, command and control, electronic-warfare and anti-submarine-warfare systems, will provide a "natural fit" with its own defence-electronics businesses, says Hughes.

The contest for Magnavox is just the latest in a line of such battles as the majors begin to eat up smaller rivals within the fast-consolidating US defence-electronics sector. Lockheed Martin, Tracor, Loral, Rockwell, Litton and ITT all reportedly, put in offers for the company.

Earlier this year, Raytheon assured its place at the top table with the acquisition of E-Systems, which adds close to $2 billion in defence-electronics sales.

Loral, already with a string of defence acquisitions to its name, also propelled itself into the major league by winning the fierce bidding war to take over the Unisys defence-computing business. That acquisition, priced at $860 million, potentially adds annual sales figures of $1.4 billion to the group.

On a smaller scale, Hughes itself snapped up the CAE-Link defence-simulation business, adding sales of around $345 million to its training division.

Analysts believe that the acquisitions will continue as the majors seek to maintain scale in a consolidating market.

A rough calculation of the likely effects of the latest round of mergers shows a small core of groups with defence sales above the $5 billion-a-year mark now beginning to widen the gap with their smaller rivals.

The only non-US group certain to match the performance of the US leaders appears to be British Aerospace, with annual defence sales in the region of $6-7 billion.

Source: Flight International