Consolidation of Power
The U.S. shipbuilding industry continued its incredible metamorphosis with the announcement of a proposed merger between Newport News Shipbuilding (NNS) and Avondale Industries, a merger which would — pending shareholder acceptance — create arguably the most powerful combination of maritime resources in the world.
The merger can be viewed as one more indication of how prevailing international business winds have spurred unprecedented levels of mergers, takeovers and consolidations, inside and out of the maritime industry.
Roots of the merger can also be traced, in essence, to the world's continually changing political climate, specifically the death of the Cold War. It was this historic event which precipitated the U.S. Navy fleet drawdown, resulting in far less business for the country's shipbuilders and leading to a host of new alliances and partnerships formed to bid for the remaining navy work. It became, then, only a matter of time before these loose alliances became official mergers and takeovers.
As the companies pointed out in releasing the deluge of data regarding the proposed merger, the $470 million merger creates a broad-based shipbuilding company capable of designing, building and maintaining every ship in the U.S. Navy fleet. The new company will not only be technically capable, but geographically diverse, with a strong presence on the East, West and Gulf Coasts, a move designed to further enable it to become the full service shipbuilder of choice for the U.S. Navy. Newport News acquired San Diego-based Continental Maritime Industries in December 1997 as the first step in its ongoing strategy to create a comprehensive inventory of services to the Navy's aircraft carrier fleet.
The transaction creates a shipbuilding company — to be known as Newport News Avondale Industries —with estimated 1999 revenues of $2.6 billion and nearly 24,000 employees.
"The combination of Newport News and Avondale brings together two highly skilled and tremendously capable shipbuilding companies," said William P. Fricks, Chairman and CEO of Newport News. "We believe the new company holds immense promise, and we expect to deliver measurable results in the form of higher returns for shareholders, enhanced value for our customers, and increased long term opportunities for employees." Albert L. Bossier, Jr., Chairman and CEO of Avondale, said: "This merger is about building a stronger combined company.
Avondale's experience in the construction of Navy and commercial surface ships complements Newport News' strengths in aircraft carrier and submarine construction, refueling, and overhaul.
Together, we can design, build, and maintain every ship in the Navy and Coast Guard fleets." There will be a five-person executive management committee of the combined company. Bill Fricks will serve as Chairman and CEO. A1 Bossier will serve as Vice Chairman while also retaining his position as President and CEO of Avondale. David J. Anderson will serve as Senior Vice President and CFO. Thomas C.
Schievelbein will be Executive Vice President, as well as COO of Newport News. Thomas M.
Kitchen will be Executive Vice President, and will become COO of Avondale. Bossier and two current outside directors of Avondale will join the company's board.
$8 Billion Backlog "Our funded contract backlog will total nearly $6 billion," said Fricks. "Total backlog, including options and planned funding, is nearly $8 billion. Significantly, the combined company's backlog represents a broad spectrum of shipbuilding programs, the majority of which is comprised of long term U.S. Navy programs." Newport News' backlog includes over $2.5 billion for aircraft carrier construction, refueling, and life cycle maintenance extending through 2002. Submarine construction programs represent nearly $1 billion in funded backlog, with an additional $1 billion expected to be funded in the next three years.
Avondale's funded backlog of $2 billion includes design and construction of two LPD amphibious assault ships, which are the first of a 12-ship class to be built for the Navy. Avondale also is constructing a series of six RoRo transport ships for the Military Sealift Command, three crude oil carriers for ARCO Marine, a subsidiary of Atlantic Richfield, and is scheduled to deliver the Polar Icebreaker WAGB Healy to the U.S. Coast Guard in mid-1999. Earlier this year, Avondale established its Maritime Technology Center of Excellence aimed at developing and applying state-of-the-art techniques to ship design and construction. Newport News expects to begin construction in 1999 of the Virginia Advanced Shipbuilding and Carrier Integration Center, a facility intended to exploit innovative technologies in the construction, integration, and life cycle maintenance of future aircraft carriers and other ships in the Navy fleet
