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by The Wall Street
Journal
5/29/2, by Anne Marie Squeo
Carlyle Group pulled the plug on a
planned initial public offering of its United States Marine Repair Inc.
subsidiary, deciding instead to sell the ship repair company to United
Defense Industries, Inc., a publicly traded company in which Carlyle owns
a 49% stake.
United Defense said it agreed to
pay $316 million to acquire United States Marine Repair, which performs
upgrades and overhauls on ships for the U.S. Navy. United Defense
officials said the acquisition "balances and diversifies" the company's
portfolio and "expands our mission to support the U.S. Navy."
The move comes as United Defense
struggles to deal with the financial impact of the Pentagon's decision to
cancel the Army's Crusader howitzer program. United Defense, Arlington,
Va., is the lead contractor on that program, which provided 20% of the
company's revenue for the nine months ended Sept. 30 and was estimated by
analysts to provide at least 25% of the company's total revenue in coming
years.
In 2001, United Defense's revenue
totaled $1.32 billion and about 55% of that came from Army programs. For
the 12 months ended March 31, United States Marine Repair had $12.3
million in net income on $431.7 million in revenue.
Acquiring the Navy repair firm will
help United Defense blunt some of its reliance on the Army and on the
Crusader in particular. But the timeliness and price of the deal, and
the ownership interest in both companies by Carlyle Group, raised
questions and eyebrows among Wall Street bankers and analysts. Carlyle is
a privately held Washington investment concern with extensive holdings in
defense-related companies.
"Up until this press release, the
underwriting team thought they were taking United States Marine Repair
public, said one person with knowledge of the situation.
United States Marine Repair,
Norfolk, Va., was to be the latest in a string of smaller military-related
companies going public at a time when defense stocks are trading high on
increased Pentagon spending. Carlyle registered with the Securities and
Exchange Commission in March to take United States Marine Repair public.
In April, the stock offering was
tentatively priced at about $16 a share. That would have raised about $170
million for Carlyle, though analysts said the newly issued stock would
have valued all of the marine repair company at about $325 million,
slightly more than what United Defense is paying for it.
United Defense officials said they
initiated acquisition discussions with United States Marine Repair back in
March and played down any potential conflicts of interest related to both
companies' relationship with Carlyle Group.
A Carlyle spokesman said the sale
to United Defense "strengthens both companies, which benefits their
employees, military and their investors." United Defense General Counsel
David Kolovat said a special process set up to ensure fairness excludes
Carlyle representatives on both companies' boards from involvement in the
negotiations. Merrill Lynch & Co. has been retained to conduct an
independent review of the proposed transaction.
United Defense shares were up 34
cents at $23.59 in 4 p.m. New York Stock Exchange composite trading.
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