General Dynamics acquires GM Defense business

DETROIT (AP) _ General Dynamics Corp. has completed its purchase of General Motors Corp.'s business that makes armored vehicles for $1.1 billion in cash, the companies said Monday. <br><br>The deal,

Monday, March 3rd 2003, 12:00 am

By: News On 6

DETROIT (AP) _ General Dynamics Corp. has completed its purchase of General Motors Corp.'s business that makes armored vehicles for $1.1 billion in cash, the companies said Monday.

The deal, first announced late last year, comes as GM works to shore up its finances by shedding operations not related to its core automotive business.

The world's largest automaker said the sale will help the company reach its goal of generating $10 billion in cash in 2003. GM said the sale will result in an after-tax gain of some $600 million in the first quarter.

Ronald Tadross, an analyst with Banc of America Securities, had estimated GM would gain $770 million after taxes for the sale. He said of greater interest right now is GM's stake in Hughes Electronics Corp., which the automaker is shopping around.

GM executives said in early January they'd announce plans for Hughes within two months. On Friday, the automaker said it would contribute 11 percent of its Hughes shares to GM's underfunded pension and health care plans.

Without the sale of Hughes and other assets, Tadross said, it's not certain GM will be able to make future pension plan contributions and dividend payments.

``The defense business sale is consistent with the strategy of divesting assets at a time when your cash flow may not meet your dividend needs,'' he said. ``The big question mark right now is Hughes in terms of when they get it and what they get.''

GM Defense produces wheeled armored vehicles and turrets. Its products include the Stryker _ a U.S. Army combat vehicle _ in a joint venture with General Dynamics.

The Army has accepted more than 400 of the 2,131 Strykers it will buy as part of a $4 billion program.

``In this transaction, a valued partner becomes part of our company,'' General Dynamics chairman and CEO Nicholas D. Chabraja said in a statement.

GM Defense, which has 2,400 employees worldwide, had about $950 million in revenue last year. It has a funded backlog of more than $1.4 billion.

GM Defense units included in the sale are research, design and manufacturing facilities in Ontario, Canada; Adelaide, Australia; Kreuzlingen, Switzerland, and the U.S.

GM retains its military trucks business, located in Troy, Michigan, which becomes part of GM North America's Fleet and Commercial Operations.

General Dynamics said in December the acquisition would give the company ``the right amount and balance of work and resources.''

General Dynamics has said it will honor existing labor agreements with GM Defense's employees.