The $1.1 billion deal announced yesterday to sell Hunt Valley-based United Industrial Corp. to a competitor is a measure of how much the U.S. military depends on unmanned spy planes to spare soldiers in two intractable wars.
United Industrial, whose Shadow drone is deployed over battlefields in Iraq and Afghanistan, will be acquired by Textron Inc., a corporation based in Providence, R.I. Textron produces Bell helicopters and Cessna aircraft and also makes golf carts, auto parts and surveillance systems. Under the agreement, United Industrial shareholders get $81 a share in cash.
The deal caps the 57-year history of United, a company that has dabbled in several industries but grew into a favorite in the defense sector when it focused on unmanned flight and became a technological linchpin in the post-Sept. 11 wars. In the past five years, its revenue has more than doubled to almost $700 million. Its stock followed the same trajectory, up 310 percent during that time. United Industrial shares climbed $4.77, or 6 percent, to $80.39 in trading yesterday. Textron shares fell $1.37, or 2 percent, to $64.01.
The company's 1,400 workers in Hunt Valley will likely remain in place as part of the deal, Textron executives said.
"The importance and success of unmanned aircraft systems in Iraq and Afghanistan strongly suggests that this technology will continue to grow for many years to come," said Ted R. French, Textron's chief financial officer, in a conference call with analysts yesterday. He said he expects unmanned systems to be "the first into and the last out of areas of future conflict."
The Shadow, manufactured by United Industrial's principal subsidiary, AAI Corp., has flown more than 200,000 hours, mostly in Iraq and Afghanistan. Each of the 18 Army brigades operating in Iraq, and the two brigades in Afghanistan, has four drones with hydraulic launchers and air-conditioned trailers that contain the operating stations.
Officials with both companies said they do not expect changes to United Industrial's 2,500-person work force and that its operations would be integrated into a Textron group that works with the defense, homeland security and aerospace markets. The combination with Textron will help it to expand, said James H. Perry, chief financial officer at United.
"Becoming part of an international organization like Textron that has resources makes it easier for us to compete in the marketplace," Perry said. "We expect the operations to stay here. Combining with Textron, hopefully, will facilitate more growth and opportunity here in Baltimore."
Perry said it has been difficult for a company of United Industrial's size to compete for government contracts that are tailored toward small or much larger companies. A lot of United Industrial's business comes from subcontracting with other companies, such as Boeing Co. He said United Industrial is looking to hire 150 people.
United Industrial was close to a takeover several years ago when activist investor Warren G. Lichtenstein, a major shareholder who now serves as chairman of the board, threatened to wage a battle for control unless management moved aggressively to sell the company. But after a year on the auction block, during which at least one proposed deal came within a signature or two of completion, the company said it was no longer for sale.
Instead, the company decided to pare itself to the AAI subsidiary. It sold a transportation division and its Detroit Stoker Co. energy business, which had been weighed down by thousands of claims related to asbestos-filled parts made by third parties and used in the company's products before 1981.
United Industrial has other divisions, repairing helicopter engines and designing factory test equipment for aircraft and satellites. But more than half its business is in unmanned aircraft systems. Its "One System" enables the Army to control various unmanned aircraft from a single video console, whether the drone was built by AAI or a competitor.
The Shadow epitomized a technologically savvy military that former Defense Secretary Donald H. Rumsfeld said could overwhelm opponents with fewer soldiers. The drones are considered a key "force multiplier" in the Iraq and Afghanistan wars with no defined front lines and hard-to-pinpoint insurgents.
The Army boasts that the spy plane was developed in a record 33 months because the need for it on the battlefield was so great that much of the normal bureaucracy was cut from the development process. The Shadow is controlled by ground combat commanders and puts "hot" tactical intelligence directly to use in the field. AAI has an exclusive contract with the Army for the Shadow fleet.
Until recently, ground commanders had little access to overhead imagery from spy drones, or UAVs (unmanned aerial vehicles). Most of the UAVs were Predators, piloted over the battlefield by Air Force personnel at Nellis Air Force Base in Nevada. The imagery from Predators was beamed through the Air Force to senior military command headquarters and only later available to ground commanders.
Brigades typically have about 3,500 soldiers and cover several hundred square miles. Having a Shadow overhead, with its intelligence "feed" coming directly into brigade headquarters, enables the unit to maintain what the military calls a "staring eye" over this large space, with the imagery and other data going directly to the combat commander who is making decisions about how and where to deploy his forces.
For example, a commander may want to keep a watch on a stretch of road where insurgents have planted bombs to try to catch bomb-planters in the act, or to maintain surveillance on a house suspected of being used by insurgents, or to scan the route ahead of a convoy.
UAVs are among the fastest-growing segments of the aerospace industry, though only a handful of companies manufacture them, including Northrop Grumman Corp. Many are hoping to expand into commercial and domestic markets, such as border and port security.
Last year, AAI purchased Aerosonde, an Australian firm that has contracts with the U.S. government to fly its drones in commercial airspace. Its small UAVs have flown through tropical storms and collected pictures for the National Oceanic and Atmospheric Administration. Competitor General Atomics' Predator drone has patrolled the U.S.-Mexico border for the Department of Homeland Security.
"But it's still a number of years off before we actually see commercial opportunities emerge," said Michael Lewis, an analyst who follows United Industrial for BB&T; Capital Markets.
The Textron-United Industrial deal, which is subject to regulatory approval and is expected to be completed by the end of the year, follows Textron's acquisition last year of Overwatch Systems, which provides sensors that collect intelligence for the military.
Textron had an eye on AAI for years. AAI had helped Textron to develop Eagle Eye, the first-ever unmanned tilt-rotor aircraft, which combines the vertical lift of a helicopter with the speed and range of an airplane. Textron officials said yesterday that the Shadow could be used to deliver its sensors or "smart" munitions or to augment data feeding into its intelligence software.
AAI would be "the glue that binds our products together," said Frank Tempesta, president of Textron Systems. "We would be able to more fully address and more successfully integrate each link in the precision engagement continuum from sensor to shooter."
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