News Column

Rocketdyne Sold for $550 Million to GenCorp

July 24, 2012

Dale Kasler

It was once Sacramento, Calif.'s glamour company, a bustling hub on Highway 50 that employed 22,000 workers and helped put men on the moon.

Now, after decades of drift and uncertainty, Aerojet is going back to its roots.

Aerojet's parent, GenCorp Inc., announced Monday it's buying rival rocket-engine maker Pratt & Whitney Rocketdyne in a $550 million deal that will nearly double GenCorp's business.

The acquisition marries two companies that came of age during the space race and Cold War but have struggled at times in an era of dwindling budgets. Rocketdyne's owner, United Technologies Corp. of Hartford, Conn., is selling the business at a $150 million loss and has said its growth prospects are "limited."

GenCorp and Rocketdyne employ fewer than 6,000 workers combined -- about a tenth of what Rocketdyne alone employed during the 1960s. The purchase isn't expected to add many workers to GenCorp and Aerojet's 1,600-employee headquarters in Rancho Cordova.

Still, the deal cements Aerojet's place in the aerospace and defense industry, which accounted for nearly all of GenCorp's $918 million in revenue last year.

Rocketdyne "almost doubles the size of our company," GenCorp Chief Executive Scott Seymour said in a news release. GenCorp will finance the purchase with a combination of cash and debt.

Analysts said the combined firm should be able to compete more effectively for government work, as well as new business from fledgling commercial space exploration companies such as SpaceX.

"We see a future in space," said Dick Bregard, vice president and deputy to Aerojet's president.

Investors applauded. GenCorp shares closed at $7.58, up 83 cents, on the New York Stock Exchange.

Daniel Holland, who follows United Technologies for investment firm Morningstar, said Rocketdyne remains a worthwhile business.

"It's an asset that's vitally important to the United States, the space administration," he said. "There's always a chance that at some point, the funding could go up."

Rocketdyne engines powered the space shuttle, and the Canoga Park company has won a piece of the shuttle's successor, the Space Launch System. The company told the Los Angeles Times it does $750 million a year in sales.

But defense and space budgets are shrinking, as United Technologies executives acknowledged when they put Rocketdyne on the block in March. UTC is selling a cluster of subsidiaries, including Rocketdyne, to help pay for its $16 billion purchase of aircraft parts maker Goodrich.

Rocketdyne "is still a very good business," UTC chief financial officer Greg Hayes said in March. "But unfortunately, without a national space policy, growth will be limited for some time."

UTC bought Rocketdyne from Boeing seven years ago for $700 million.

In its 2011 annual report, GenCorp said defense and space budgets "are expected to remain under severe pressure."

Jim McAleese, a defense industry consultant in Virginia, said Rocketdyne will strengthen Aerojet as a competitor. He called Aerojet a "midtier player" with a strong reputation.

Rocketdyne will help Aerojet fill out its portfolio. Rocketdyne is known for massive booster engines used at liftoff. Working with renowned NASA scientist Wernher von Braun, it supplied the main engines for the Saturn V rockets that propelled the Apollo moon missions.

"We don't have the big engines that this company does," Aerojet's Bregard said.

The Sacramento company's relatively smaller engines are found in weapons like the Air Force Minuteman missiles, as well as thrusters that guide space satellites. Almost all its sales are to the Pentagon and NASA, either directly or through bigger contractors such as Raytheon.

During its heyday, in the 1960s, Aerojet literally worked around the clock to build rocket engines for the space program and the Cold War. The roar of engines being tested could be heard for miles around. Astronauts Frank Borman and Neil Armstrong dropped in to give workers pep talks.

During the past four decades, though, the company has struggled to reinvent itself. Aerojet and GenCorp (successor to the old General Tire and Rubber) tried to diversify, putting money into electronics, chemicals and auto parts with mixed results.

GenCorp put Aerojet up for sale in 1994 but couldn't find any takers. A big problem was extensive groundwater contamination on the Rancho Cordova property.

In 2000, GenCorp tried again. It agreed to sell Aerojet's engine business to United Technologies -- the same firm on the selling end of the current deal -- and ship most of its work to San Jose and Florida.

That sale also fell apart, and GenCorp said it was in the aerospace business to stay. It spent $200 million on a handful of small aerospace acquisitions.

Still, growth in aerospace came slowly, and in 2008 an unhappy New York hedge fund that owned 14 percent of GenCorp's stock, Steel Partners II, took control of the company and ousted its CEO.

The move sparked speculation that Steel would sell GenCorp, or at the very least accelerate development of 6,000 acres of idle land owned by GenCorp on Highway 50 in eastern Sacramento County -- something the company has been pushing for years.

For now, the housing market crash has delayed hopes of real estate riches. Kathy Redd, the company's chief financial officer, said GenCorp still expects to develop the property some day, but not at the expense of its first love. "Our core business is really our aerospace and defense business," she said.

Two weeks ago, GenCorp announced a partnership with a French company to build a European aerospace subsidiary.

At the same time it announced the Rocketdyne deal, GenCorp named a new president of Aerojet, Warren M. Boley Jr., to replace Seymour. Seymour remains GenCorp's CEO.

Boley has decades of experience in the industry, including 27 years at United Technologies. He most recently was a consultant to a tool manufacturer in Illinois.

At a glance

What happened Monday: Aerojet's owner, GenCorp Inc., buys Rocketdyne from United Technologies for $550 million.

The significance: Deal nearly doubles GenCorp's business, cements company's commitment to aerospace following years of uncertainty.

The risk: Government aerospace and defense budgets are dwindling. Rocketdyne is being sold at $150 million loss.

About GenCorp: Earned $2.9 million in 2011 on $918 million in sales. Makes rocket engines for Pentagon, NASA. Employs 3,300, about half in Rancho Cordova.

About Rocketdyne: Based in Canoga Park, powered Apollo missions and the space shuttle. Employs 2,200.

Source: (c)2012 The Sacramento Bee (Sacramento, Calif.) Distributed by MCT Information Services

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