NEW YORK — L-3 Communications Holdings Inc., a maker of military communications systems, agreed Monday to buy a Raytheon Co. unit that modernizes and repairs aircraft for $1.13 billion, its largest purchase ever.
The Aircraft Integration Systems business is based in Greenville, Texas, and had sales of about $900 million in 2001, L-3 said in a statement. The unit has about 6,000 employees.
The acquisition will increase sales by about 50 percent at L-3, which was created in 1997 after a management-led buyout of some former Lockheed Martin Corp. units. Raytheon will use the proceeds to reduce debt acquired through a series of purchases during the 1990s. The unit also makes battlefield communications systems and equipment to analyze signals.
"The key issue for Raytheon is to pay down debt," said Win Murray, an analyst with Boston-based Liberty Funds Group, which owns Raytheon shares. "This is a decent price for this business," considering that it has declining sales and margins, he said.
Raytheon, the third-largest U.S. defense contractor, has to pare its $7.6 billion in debt to avoid having its bond rating cut to "junk" status. Moody's Investors Service Inc. and Standard & Poor's Corp. give their lowest investment-grade ratings to the company's debt.
The sale of Air Integration comes less than a year after Raytheon lost a U.S. contract worth as much as $4 billion to upgrade the cockpits and electronics of the C-130 military transport plane to Lockheed.
Shares of New York-based L-3 fell 65 cents to $88.36 in midmorning trading. Raytheon fell 57 cents to $31.45. The shares gained 2.5 percent in the past year.
L-3, whose shares had risen 20 percent over the last 12 months, makes secured communications networks for the U.S. government and so-called airline black box flight data recorders. The company expects to sell $1 billion of debt and equity securities in the first half of the year to retire interim financing used in the purchase.
Lehman Brothers Inc., which helped found L-3 and still owns about 1 million shares, advised the company on the transaction. Bear, Stearns & Co. advised Raytheon.
Raytheon's profits in Aircraft Integration were affected in 2000 by a write-down on contracts it had to build custom interiors for Boeing Co. business jets, the company said in filings with the Securities and Exchange Commission. Raytheon has declined to discuss the nature of the write-downs.
It's the second purchase of a Raytheon unit by L-3, which acquired a flight-simulator and training business in 2000 for about $160 million. L-3 later sued over the sale, alleging Raytheon, based in Lexington, Mass., failed to disclose $100 million in additional liabilities. The complaint was later dropped.
L-3 beat larger rivals BAE Systems Plc, Europe's biggest defense contractor, and Northrop Grumman Corp., the fourth-largest U.S. defense contractor, the Wall Street Journal and New York Times reported earlier Monday.