19 Dec 02. General Dynamics Corp. (NYSE:GD – News) is expected to acquire General Motors Corp.’s defense unit for $1.1bn, making the diversified defense contractor the nation’s leading maker of armoured vehicles at a time when the world-wide market is expanding, people familiar with the transaction told The Wall Street Journal.

The deal could be announced as early as today, and is expected to close during the first quarter of 2003, these people said. The units being acquired had approximately $965 million in revenue for 2002 and about 2,400 employees. Included in the transaction are GM facilities in California, Canada, Australia and Switzerland. It doesn’t include GM’s Troy, Mich., facility that makes military support trucks based on commercial designs, the people said.

The boards of both companies have approved the deal, in the works since at least July, the people said. Spokesmen for General Dynamics and General Motors declined to comment on the deal.

For auto maker GM, the sale is part of a corporate effort to sell non-core businesses and to raise cash to strengthen its balance sheet and pare an unfunded pension liability that could total as much as $23 billion. For General Dynamics, already a leader in the armored-vehicle market with its Abrams tanks, the acquisition greatly expands the company’s offerings of lighter, wheeled vehicles, the fastest-growing segment of the market.

The deal also fits with the defense company’s overall strategy of purchasing businesses that strengthen and expand its existing lines. Once the purchase is completed, General Dynamics’ combat business will be approximately the same size as its shipbuilding, business-jet and information-technology units.

Comment: GD is rapidly expanding its light vehicle operations having won the Stryker with the GM/GDLS JV. This deal will give GD control over the Stryker contract and strengthen the company’s offering for FCS requirements. In November 2000, the GM/GDLS Defense Group, a joint venture between General Motors and General Dynamics Land Systems, was awarded a six year, $4bn contract to equip the U.S. Army’s Brigade Combat Teams with 2,131 Stryker wheeled vehicles through a series of orders starting in 2001. These new armoured wheeled vehicles are the centrepiece of the U.S. Army’s effort to transform itself into a more agile and deployable force. The US Army recently announced the award of the 4th Stryker Brigade (See BATTLESPACE UPDATE Vol.4 ISSUE 51, December 18th 2002, FOURTH STYRKER BRIGADE, COMANCHE IN US APROPRIATIONS BILL).

This purchase also brings in the MOWAG and BUCHER DURO range of vehicles as well as licensing deals with Alvis in the Uk amongst others. GD is keen for a greater involvement in the UK FRES contract (See BATTLESPACE UPDATE Vol.4 ISSUE 49
December 6th 2002, FRES TAKES SHAPE) and this deal will certainly strengthen the company’s hand in overseas markets and vehicle technology.