Orbital Sciences to Sell Fairchild Defense Electronics For $100 Million

Orbital Sciences Corp. [ORB] said that it has agreed to sell its Fairchild Defense electronics business, which supplies avionics for military aircraft, to a U.S. subsidiary of Smiths Industries plc, a U.K. avionics and aerospace manufacturer for $100 million in cash.

It plans to use the proceeds of the sale “to reduce bank debt and increase overall liquidity,” OSC said.

The company does not plan to use any of the proceeds to extend further support to its Orbital Communications (Orbcomm) subsidiary, 32 percent of which is owned by OSC and which has been in a severe cash crunch. Two weeks ago, Orbcomm sought protection under the bankruptcy laws in order to gain time for financial reorganization.

OSC spokesman Barron Beneski said the company prefers to conclude its current parallel discussions with Orbcomm’s bondholders and potential new investors.

OSC acquired the Fairchild Defense organization when it bought Fairchild Space and Defense Corp. in 1994. It merged Fairchild Space with its own satellite design and manufacturing group and operated Fairchild Defense as part of its own electronics and sensors group.

The company said the Fairchild Defense electronics business had revenue of about $76 million last year and has about 420 employees, all of whom are expected to remain with the business after the sale to Smiths.

“Fairchild Defense has been an important contributor to Orbital over the last six years,” said David Thompson, OSC’s chairman and CEO. “Today, however, as we sharpen the company’s strategic focus on our core space technology business and work to strengthen our financial position, we believe the sale of Fairchild Defense to Smiths Industries makes good sense for both companies,” he added. “The people and products of Fairchild Defense represent a natural fit with Smith Industries’ aerospace business, while its sale is an important part of Orbital’s campaign to boost shareholder value for our investors.”

The $100 million price “is especially impressive in a buyers market,” said William Kidd, senior satellite analyst at C.E. Unterberg, Towbin. “On a price/sales basis, the company sold at roughly 1.3 times sales, which compares favorably to the aerospace industry’s 1.0 times average,” Kidd said.

“Similarly, on a normalized pro forma price/earnings basis we estimate that Fairchild sold for 20 times 2000 earnings, which again compares favorably to the aerospace comparable average price earnings [ratio] of 17 times 2000 earnings,” he added.

Kidd said he believes further “catalysts” to improve OSC’s share price “may be looming on the horizon.” The sale of OSC’s Magellan Corp. subsidiary in Santa Clara, Calif., which manufactures GPS receivers and timing products, “could occur before year end,” he added.