|B-1 Lancer bomber|
ST. LOUIS ( TheStreet) -- Boeing's ( BA) defense unit is continuing its growth effort with the $775 million purchase of a Virginia-based developer of electronic systems used in defense and surveillance. The purchase made acquiree Argon ST ( STST) a market leader on Wednesday; its shares rose 40%. Boeing shares fell 29 cents to close at $62.75. In mid-morning trading on Thursday, Boeing stock was down 46 cents at $62.29. Boeing remains the Dow leader, up about 15% in 2010 and just one of five Dow stocks that is up for the year.
Boeing's Defense, Space and Security, which has an estimated 2010 revenue of $32 billion to $33 billion -- about half of Boeing revenues -- is trying various methods to grow despite the expectation of reduced defense spending, including
an internal effort to create new businesses. During a press call with reporters, Roger Krone, president of BDS division Boeing Network and Space Systems, said Argon will become a new division within his group. He said it is likely that some other small Boeing businesses could be folded into the new division. Argon offers "technologically sophisticated, network based solutions" for the Navy, Air Force and Department of Homeland Security and has little overlap with Boeing, said Krone, adding that "All Boeing divisions can leverage Argon expertise." The two companies have worked together for about two years. Early in 2009, Argon, which had 2009 revenues of $366 million, hired an investment bank to explore strategic alternatives. "The process from there was relatively straightforward," Krone said. "We were contacted by Argon representatives, which led to submittal of a bid." Argon CEO Tony Collins added, "What we wanted to do was to find a company that could leverage our products and capabilities and with which we had a good fit. Our board was interested in providing stockholder value as well as trying to maintain the customer community we have. "Boeing brings scale and global reach to the international marketplace, which we don't have at the current time," Collins added. In a report issued late Wednesday, Moody's said its rating on Boeing debt, which it recently revised to negative, was not impacted by the deal. "We anticipated that Boeing, as well as other large defense contractors, would pursue investments in the C4ISR markets," or command, control, communications, computing, intelligence, surveillance and reconnaissance, the firm said. "Argon ST's products (sensors, counter-measures, battlefield intelligence) are consistent with that strategy. "This is a sizeable transaction, however," Moody's said. "Funding with cash on hand (which was about $10.4 billion at the last quarter) will reduce Boeing's financial flexibility at a time when the company is focused on ramping up the B787 production and considering potentially large development programs." -- Written by Ted Reed in Charlotte, N.C.