Newspaper article THE JOURNAL RECORD

General Dynamics to Buy Gulfstream

Newspaper article THE JOURNAL RECORD

General Dynamics to Buy Gulfstream

Article excerpt

FALLS CHURCH, Va. (Bloomberg) -- General Dynamics, which makes tanks and nuclear submarines, on Monday agreed to buy Gulfstream Aerospace for $5.64 billion in stock and assumed debt, re-entering at a peak period the commercial-aircraft business it exited earlier this decade.

Shareholders of Gulfstream, the top maker of long-range business jets, will get one share of General Dynamics stock for each share held, valuing each Gulfstream share at $65.25.

On Monday, General Dynamics stock tumbled 6 3/16, or 8.7 percent, to 65 1/4, the biggest one-day price drop since September 1993. "They are buying a business that appears to be at or near a peak, and possibly could be overpaying," said Brad Erwin, an analyst at Banc One, which owned 700,495 General Dynamics shares as of December. General Dynamics is betting that its experience making sophisticated war machinery can be applied to producing aircraft more efficiently. In Gulfstream, the company gets about 60 percent of the luxury-class business-jet market, an economically sensitive industry that's expected to have 1999 sales topping $7 billion, almost double four years ago. Gulfstream has about 7,800 employees in six state, including about 675 employees at its aircraft parts and assemblies plant at 7400 NW 50th St. in Oklahoma City. There are not expected to be any changes to Gulfstream's existing management, operation or workforce. It will operate as a subsidiary of General Dynamics. "It's the first deal that General Dynamics has done lately that is a little bit puzzling," said Jon Kutler, president of Quarterdeck Investment Partners, a Los-Angeles-based firm that advises aerospace companies. "That's why you see the stock down this morning. It's basically a change of strategy from a General Dynamics perspective." The sale, which includes the assumption of $342 million in debt, represents no such change in strategy by Gulfstream Chairman Theodore Forstmann, a New York billionaire who made his fortune buying and selling companies. With his leveraged-buyout firm, Forstmann Little & Co., he is the biggest shareholder in Savannah, Ga.-based Gulfstream. Forstmann bought the company from Chrysler for $850 million in 1990 and now expects to gain about $3 billion in cash and General Dynamics stock from the sale. Forstmann took Gulfstream public in October 1996 at $24 a share. In December, Forstmann took on the job of chief executive, which led analysts and investors to speculate that he wanted to sell the business with the market topping out. Falls Church, Va.-based General Dynamics used to own one of the five companies that dominate the business-jet market: Cessna, which it sold to Textron Inc. in 1992. Other competitors include the Beech division of Raytheon Co.; Bombardier, maker of the Learjet and the largest business-jet maker as measured by sales; and France's Dassault Aviation. …

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