Graham Warwick/WASHINGTON DC
The long-anticipated sale of US business jet giant Gulfstream has been announced, but the buyer is a surprise: General Dynamics (GD) has agreed to acquire the manufacturer in a one-for-one stock swap which values the company at $5.3 billion.
GD was attracted by Gulfstream's strong cashflow and substantial firm order backlog. Analysts expect Gulfstream's financial health to bankroll further acquisitions by GD, which in turn is expected to provide the financial resources for expansion of the former's products and services.
Georgia-based corporate aircraft manufacturer Gulfstream, which generated sales of $2.4 billion last year, compared with GD's $5 billion, says it wants to expand its fractional-ownership and short-term lease programmes, and that the deal should also boost expenditure on product development.
Gulfstream ended the first quarter of this year with an orderbook exceeding $4 billion. GD chairman Nicholas Chabraja says that over 60% of a 130-aircraft backlog is due for delivery from next year, with firm orders to 2003 and options to 2007. Production is expected to continue at the current high rate of 65 Gulfstream IVs and Vs a year for the next three to four years, Chabraja says.
Virginia-based GD left the civil aircraft market in 1992, when it sold Cessna to Textron for $600 million - a move Chabraja views as a mistake. The company subsequently left the aircraft business entirely in 1993, when it sold the F-16 production line to Lockheed. Since then, it has focused on the armoured vehicle, warship/submarine and defence electronics markets, and is the fourth largest contractor to the US Department of Defense (DoD).
Gulfstream will form a fourth, aircraft group within GD, of which it will be a wholly owned subsidiary. The companies expect some synergies, with GD helping to develop government and military variants of Gulfstream aircraft. Chabraja expects the company to benefit from GD's expertise with computer-aided design and manufacturing.
Investment firm Forstmann Little, which bought Gulfstream from Chrysler in 1990 with an equity investment of $200 million, owns 23% of the company and has backed the transaction. Teddy Forstmann, who will continue as Gulfstream's chairman, says his firm and its investors will realise $3 billion from the sale and previous transactions, which included a public offering in 1996.
Gulfstream is GD's second major commercial acquisition - the first was Computing Devices - since the disposals of the early 1990s, the deal coming in the wake of a DoD decision to block the take-over of rival warship giant Newport News Shipbuilding. GD is among bidders for the defence electronics assets of Texas-based GTE, being auctioned for up to $1.5 billion as part of a larger telecommunications merger.
Source: Flight International