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GE to Sell Unit to Martin Marietta

By Mark Potts and Steven Pearlstein
The Washington Post


Martin Marietta Corp. announced Monday that it will acquire General Electric Co.'s aerospace division in a $3 billion deal that will make it the world's largest military electronics firm.

The purchase, the largest to date in a broad restructuring of the shrinking defense industry, would nearly double the sales of Bethesda, Md.-based Martin Marietta but would have little impact on employment in the Washington area.

Defense industry executives predicted Monday that the marriage of the two operations would accelerate the pace of defense company mergers and acquisitions, which is likely to result in fewer, larger firm competing for a smaller Pentagon research and procurement budget.

Announcement of the sale Monday capped a month of intense and secretive negotiations involving only a handful of officials of the two companies at GE's corporate offices on the 53rd floor of New York's Rockefeller Center.

Executives of the two companies characterized the merger of the two operations as a perfect strategic fit, with complementary programs and technologies, and minimal overlap. Traders on Wall Street Monday seemed to agree. Shares of both companies' stock rose to 52-week highs.

For Martin Marietta, which has been primarily a supplier of subsystems to larger defense firms, the GE purchase will position it to become a major prime contractor in future competitions for weapons systems contracts with the Pentagon.

An example of its new marketing power is the fact that in the future it will be able to combine its own Titan rocket boosters with GE's communications satellites, and its battlefield missile systems with GE's radars.

As part of a broader alliance between the two firms, Martin Marietta will also gain access to GE's research labs and its system of management, which has been adopted by many other corporations. The deal will enable GE to acquire about 23 percent of Martin Marietta's common stock and entitles it to two seats on the firm's board of directors.

For GE, the deal offers a graceful exit from a business that faces an uncertain future and has yielded no increase in profits in the last three years.

GE Chairman John F. Welch Jr. said the transaction would create an international powerhouse that would operate more efficiently, and market more effectively, than either company acting separately.

"This is one of those situations in which one and one can make three," said Welch in an announcement beamed by satellite to GE and Martin Marietta installations around the country. "This company will walk into the global arena with twice the resources and a fraction of the overhead (expense) of the two companies that created it."

Initially, Martin Marietta's payroll will increase by more than 50 percent as a result of the addition of 33, 000 GE workers. But executives of both firms warned that the transaction only makes sense if the two companies can achieve efficiencies by combining some operations, closing plants and reducing overlap in areas such as marketing, contract management and research, as well as in the corporate staff.

Augustine said the company's headquarters will remain in Bethesda, where several dozen executives will be added from GE's aerospace headquarters in Valley Forge, Pa. Martin Marietta's major facilities are in Baltimore, Denver and Orlando, Fla., while most of GE's employees are scattered at a dozen sites in the Philadelphia region, where the company is the largest private employers.

Martin Marietta Chairman Norman R. Augustine called the proposed acquisition of the GE division "a significant milestone in the creation of a stronger, healthier, more competitive" industry.

Augustine said, "We had to make a choice. The choice was either ... to shrink and sink or to combine and grow."

The proposed transaction, which is subject to approval by Martin Marietta shareholders, the Pentagon and federal antitrust regulators, will nearly double the size of Martin Marietta, to $11.4 billion in annual revenue from $6.1 billion, based on 1991 figures. About one-third of that revenue will come from non-defense work.

The subtraction of the aerospace division will scarcely make a dent in GE's $60.2 billion annual revenue. But it is consistent with Welch's oft-stated aim of keeping GE only in businesses in which it has a leadership position, and shedding any that don't measure up to that goal.

After announcing their deal Monday morning, Augustine and Welch headed off together to meet with the head of their biggest customer, Defense Secretary Richard B. Cheney. While declining to bless the proposed transaction, Pentagon spokesman Pete Williams said Cheney "strongly supports the idea of letting private industry work out its own downsizing rather than having it imposed on them by government."

The Pentagon was informed of the sale Sunday night, along with dozens of members of Congress.

Under the terms of the proposed transaction, GE will receive slightly more than $2 billion in cash plus $1 billion in convertible preferred Martin Marietta stock in exchange for the aerospace division.