Hercules Inc. said Tuesday it has agreed to sell its Aerospace Division, which includes the Bacchus Works in Magna, to Alliant Techsystems for $365 million in cash and 3.5 million shares of newly issued Alliant Techsystems stock.
Alliant Techsystems, based in Hopkins, Minn., supplies defense and marine systems to the U.S. government and its allies. It employs 4,800 people throughout the United States and reported sales of $775 million and profits of $39 million for the fiscal year ended March 31.Hercules Aerospace manufactures rocket motors for space launch, strategic and tactical weapons systems and ordnance for the U.S. Army and has operations in seven states, including Utah.
A spokesman said the two companies have been discussing the deal since Jan. 14 under a confidentiality agreement.
Gov. Mike Leavitt said Tuesday morning that he'd spoken with Hercules executives and received assurances that the sale would have no immediate negative impact on the company's Bacchus plant or its employees.
"The governor was told that in the long range, this (sale) could be very positive for the Utah works," said Leavitt spokesman Vicki Varela.
She said Leavitt would be in contact with Alliant executives Tuesday afternoon to get further updates on what the sale could mean to Utah employees of Hercules.
Paul Smith, press secretary for Sen. Orrin Hatch, R-Utah, said Alliant has asssured Hatch that no employment reductions are anticipated other than cuts already under way by Hercules.
According to Utah Job Service statistics, Hercules' work force has dropped from 3,000 employees in the first quarter of 1992 to 2,600 employees in the same period in 1994.
Hercules spokesmen David Nicponski and Bob Hessler said Alliant has "committed" to retaining all 5,700 Hercules Aerospace employees of which about 2,000 work at the Bacchus and Clearfield plants and are affected by the merger. Another 600 people employed by Hercules Graphite Fibers division at Bacchus are not affected by the sale.
"It will be business as usual, even after the deal goes through," said Hessler.
Nicponski said Hercules Aerospace has undergone "significant downsizing" in recent years and is now "lean and mean."
Thayne Robson, director of the University of Utah Bureau of Business and Economic Research, said it is too soon to judge the economic impact of the pending sale on Utah's economy.
"It's a case of a smaller company buying a bigger one, and I'm fascinated with that," said Robson. "But until we know more about it, I don't know whether it's good or bad for Utah. One thing for sure, there will be great anxiety by the employees until the dust settles."
According to recent Wall Street Journal articles, Alliant Techsystems is not the healthiest of companies. In January 1993, executives announced a third of its 5,600 workers would be laid off. The company at the time said it was taking a $90.5 million net loss on sales of $237.5 million.
The munitions-maker said the layoffs were due to the general decline in the U.S. defense industry. Alliant makes a host of weapons, including tank ammunition, torpedoes, cluster bombs and medium-caliber machine-gun rounds. Specific weapon systems that Alliant wasn't selling were its Adam anti-personnel mine, the disposal infantry weapon known as the AT-4 and the Mk-46 torpedo.
Alliant is a 1990 spin-off from the huge Honeywell Inc. In announcing the layoffs over a year ago, company executives said the restructuring would be complete in April 1994.
This is not the company's first attempt to diversify by buying other firms. In December 1992, Alliant tried to swap 22 percent of its shares to acquire Olin Corp.'s ordinance operations but was stopped by federal antitrust regulators in federal court.
One thing that looks good for the company is a deal struck with the Ukranian government to dismantle stockpiles of surplus conventional munitions left over from the old Soviet Union. Under the joint venture with the Ukranian government, Alliant provides expertise and material to dismantle the munitions, the scrap metal from the arms to be sold and the explosive material either destroyed or converted into mining explosives.
Finally, the Wall Street Journal reports that Alliant executives are in the middle of a proxy fight, scheduled to culminate in a July 27 stockholders meeting in Minneapolis. Capstay Partners L.P., a New York hedge fund, wants to take a majority position in the munitions firm and seeks six seats on the board to consolidate its authority.
The Hercules Aerospace sale to Alliant is subject to a variety of conditions, including negotiation of a final agreement, federal regulatory approvals and approval by Alliant's shareholders who will vote on the deal after a final agreement is made.
Closing of the sale is expected by Dec. 31, according to the two companies.
An Alliant spokesman described the company's future as "bright," adding that Hercules' aerospace business brings several new potential programs under development that could result in major future added revenue and profit. At the same time, he said, Hercules will benefit from the opportunity to create shareholder value through its 26 percent ownership of the combined companies.
He said Hercules and Alliant have agreed that Hercules will hold two of the eight non-employee seats on Alliant's board of directors and it will be proposed that Thomas L. Gossage, chairman, president and chief executive officer of Hercules, and R. Keith Elliot, Hercules' senior vice president and chief financial officer, serve as directors.
Also, Richard Schwartz, executive vice president of Hercules Inc. and executive vice president of Hercules Aerospace, will join Alliant in a "senior management position" and serve on the Alliant board as an employee director.
Included in the deal are Hercules Space and Strategic Propulsion, Composite Structures, Tactical Propulsion, Ordnance, Hercules Defense Electronics Inc., and Global Environmental Solutions Inc.
Those entities had combined revenues of $660 million and operating profit of $105 million in 1993.