Raytheon To Buy Ti's Defense Business -- $2.95 Billion Deal Comes Amid Flurry Of Takeovers

LEXINGTON, Mass. - Raytheon said it will buy the defense-electronics business of Texas Instruments for $2.95 billion in cash as it hurries to boost its stature in a consolidating defense industry.

The acquisition also may improve Raytheon's chances for winning the next big prize in the industry, the defense and aerospace holdings of General Motors' Hughes Electronics, analysts said.

After the transaction, Raytheon would have more than $15 billion in annual sales and be one of the biggest competitors in the missile and defense-electronics industry.

The sale would let Texas Instruments focus on its semiconductor manufacturing operations.

Raytheon's stock was up 50 cents, to $50.25, in late trading. Texas Instruments climbed 37.5 cents, to $67.375.

The purchase comes amid a flurry of takeovers - and on the heels of Boeing's December announcement that it would buy McDonnell Douglas for $13.3 billion - as defense companies calculate that cost-savings to be achieved through acquisitions will allow them to survive in the next century as defense budgets shrink. It also would make Raytheon a bigger competitor against industry leaders Lockheed Martin and Boeing.

In mid-October, Raytheon Chairman Dennis Picard indicated that the company's defense acquisitions to date weren't enough to allow it to compete with Lockheed and other large rivals. In buying Texas Instruments' defense property, Raytheon acquires a line of missiles and radars that don't overlap with its current offerings.

The Texas Instruments purchase also may be the "setup" for buying Hughes, said Bob Finch, a money manager at Aeltus Investment Management. Since GM would accept stock for Hughes, it wants the buyer to be a company whose shares have the best chance of appreciating, Finch said.

Now that Raytheon has Texas Instruments' defense business, it can argue that it has better prospects than Northrop Grumman, which is seen as the other likely bidder, Finch said.

Raytheon makes missiles, radars, military training planes, business jets and home appliances.The new unit, which would be called Raytheon TI Systems, employs about 12,000 people and would be based in Lewisville, Texas, just west of Dallas.

Subject to federal antitrust review, the transaction would be completed in the second quarter.