Raytheon pays $2.9bn for TI defence units

Raytheon yesterday announced a $2.95bn (pounds 1.75bn) all-cash purchase of the defence units of Texas Instruments, turning yet another page in the long-running consolidation of the US military and defence industry.

The deal will elevate Raytheon to the number two spot among US electronic defence companies, beneath Lockheed Martin. It may also boost its chances of absorbing Hughes Electronics, which is being put up for auction by its parent, General Motors.

Raytheon was reported to have beaten competition from Northrop Grumman to snare the Texas Industries businesses. Northrop Grumman is expected to emerge as Raytheon's only serious rival for Hughes Electronics, the final bids for which were due for submission last night.

The sale of Hughes, which should fetch as much as $9bn, could become the last big transaction in the mergers binge that has transformed the US defence industry since the end of the Cold War. The recent move by Boeing to acquire McDonnell Douglas for about $14bn was principally driven by the attractiveness of McDonnell Douglas' defence businesses.

If Raytheon emerges as the winner in the race for Hughes also, some analysts would expect Northrop Grumman to struggle to survive as a free- standing company.

Wall Street welcomed the Raytheon-Texas Instruments match, boosting the shares of both companies. The deal, which should be closed in the second quarter barring any government monopoly objections, would boost Raytheon's defence electronics sales to roughly $8bn a year.