NEW YORK - Raytheon Co., maker of the Patriot missile, announced today that it has won the bidding to buy the defense operations of Hughes Electronics from General Motor Corp. in a $9.5 billion deal.
The transaction, the most recent combination in the fast-consolidating defense industry, represents a setback for Northrop Grumman Corp., also a bidder for the unit. The combined company will be called Raytheon Co. and will have revenue of about $21 billion a year.
The combination of Raytheon and the Hughes unit would create the nation's third-largest defense contractor, ranking behind aerospace giants Boeing Co. and Lockheed Martin Corp.
Raytheon will issue $5.1 billion of stock to acquire the Hughes unit, as well as assume $4.4 billion of its debt.
The bidding has been closely followed since the Hughes defense unit, which comprises Hughes Aircraft, is one of the last big defense assets to come up for sale. The defense unit builds missiles, radar and heat-imaging systems and employs 40,000.
"The combination of the Hughes and Raytheon defense businesses will create a unique technology company and a world leader in defense electronics," Dennis J. Picard, Raytheon's chairman and chief executive, said in a statement.
With the end of the Cold War, defense budgets have been shrinking and with them defense companies. That has caused mergers, the most recent megadeal being Boeing's agreement last month to buy McDonnell Douglas Corp.
Just last week, Raytheon acquired the defense electronics business of Texas Instruments Inc. for $3 billion.
Raytheon said that upon completion of the purchase, including the Texas Instruments' deal, the combined company will have about 127,000 employees and be based in Lexington, Mass. The Hughes purchase is expected to be completed by mid-year.
"Our two companies have worked together successfully on several ventures in the past," said John C. Weaver, president of Hughes Aircraft. Weaver will become president of Raytheon Hughes Systems and report to Picard.
Hughes, controlled by GM, has been a success at converting Cold War technology to commercial use. It still has a huge commercial satellite business, including the pending acquisition of PanAmSat, DirecTV home satellite, and the Delco auto electronics operations.
Raytheon manufactures missiles, radar and air-traffic control and communications systems. It employs 75,000 workers and also makes Amana appliances and Beech aircraft.