Mike
29 December 1999, 14:50
Wall Street Journal
December 29, 1999
Colt's Announces Intent To Purchase German Gun Maker Heckler & Koch
By Paul M. Barrett, Staff Reporter of The Wall Street Journal
Continuing its shift to the military market and away from civilian handguns, Colt's Manufacturing Co. said it has agreed to acquire a well-known European maker of small arms.
The deal, if completed, is expected to have the side effect of further consolidating the besieged U.S. civilian handgun industry. That is because after Colt's buys Germany's Heckler & Koch GmbH, the American company intends to phase out much or all of Heckler & Koch's modest pistol sales in the U.S.
Colt's began eliminating most of its own handgun business in the fall, partly in response to a wave of lawsuits against handgun makers filed by 28 cities and counties across the country. Three smaller manufacturers of inexpensive handguns in California have shut their doors or sought Chapter 11 bankruptcy-court protection over the past year, also citing pressure from the litigation.
The New York investment group that controls Colt's, headed by Donald Zilkha, has signed a letter of intent to acquire Heckler & Koch from a unit of British Aerospace PLC, which is now operating as BAE Systems, John Rigas, a Zilkha partner said. The deal, which has a price tag of "a little more than" $100 million and is expected to be completed early next year, would require approval from the U.S. Departments of Defense and State, Mr. Rigas said.
Heckler & Koch has been named as a defendant in some of the municipal gun suits. Colt's, Heckler & Koch and the other defendants have all denied the central allegation -- that they are indirectly liable for the public costs of gun violence.
Clive Richardson, managing director of Royal Ordnance, the BAE Systems unit that now owns Heckler & Koch, confirmed the British unit had signed the letter of intent with Colt's. But he said "there is a hell of a long way to go" before the transaction is completed. One concern on his side, Mr. Richardson explained, was whether it made sense to sell Heckler & Koch amid so much uncertainty over the municipal litigation. He declined to comment on the purchase price.
The combined company would be in a strong position to compete for military-rifle and grenade-launcher contracts in the U.S. and Europe, Mr. Rigas predicted. Colt's already makes such weapons and has substantial back orders from the Pentagon, he added. He projected the combined company will have revenue of about $286 million in 2000.
Colt's expects to have 1999 revenue of about $129 million. The West Hartford, Conn., company had expected to turn a small profit this year, but Mr. Rigas said he now anticipates a loss because of restructuring charges related to the shift away from handgun production. Those charges relate to layoffs of about 200 workers, among other things, he explained.
Mr. Rigas strongly denied rumors in the U.S. gun industry that Colt's is seriously considering filing for Chapter 11 bankruptcy-court protection from its creditors. Colt's, which has struggled financially since the mid-1980s, was in bankruptcy-court proceedings in 1994 when it was acquired by the Zilkha group.
The municipal suits are seen by gun foes as a means to force the gun industry to incorporate more safety devices into their weapons and police more aggressively how they are distributed. While decrying the suits as an illegitimate attempt to legislate through the courts, gun company executives have held preliminary settlement discussions with some municipal officials. In an attempt to galvanize those talks, the Clinton administration this month threatened to file its own suit on behalf of public-housing authorities.
Mr. Richardson said Heckler & Koch is profitable but BAE Systems decided to shift away from making smaller military arms and toward larger, more complex weapons.
December 29, 1999
Colt's Announces Intent To Purchase German Gun Maker Heckler & Koch
By Paul M. Barrett, Staff Reporter of The Wall Street Journal
Continuing its shift to the military market and away from civilian handguns, Colt's Manufacturing Co. said it has agreed to acquire a well-known European maker of small arms.
The deal, if completed, is expected to have the side effect of further consolidating the besieged U.S. civilian handgun industry. That is because after Colt's buys Germany's Heckler & Koch GmbH, the American company intends to phase out much or all of Heckler & Koch's modest pistol sales in the U.S.
Colt's began eliminating most of its own handgun business in the fall, partly in response to a wave of lawsuits against handgun makers filed by 28 cities and counties across the country. Three smaller manufacturers of inexpensive handguns in California have shut their doors or sought Chapter 11 bankruptcy-court protection over the past year, also citing pressure from the litigation.
The New York investment group that controls Colt's, headed by Donald Zilkha, has signed a letter of intent to acquire Heckler & Koch from a unit of British Aerospace PLC, which is now operating as BAE Systems, John Rigas, a Zilkha partner said. The deal, which has a price tag of "a little more than" $100 million and is expected to be completed early next year, would require approval from the U.S. Departments of Defense and State, Mr. Rigas said.
Heckler & Koch has been named as a defendant in some of the municipal gun suits. Colt's, Heckler & Koch and the other defendants have all denied the central allegation -- that they are indirectly liable for the public costs of gun violence.
Clive Richardson, managing director of Royal Ordnance, the BAE Systems unit that now owns Heckler & Koch, confirmed the British unit had signed the letter of intent with Colt's. But he said "there is a hell of a long way to go" before the transaction is completed. One concern on his side, Mr. Richardson explained, was whether it made sense to sell Heckler & Koch amid so much uncertainty over the municipal litigation. He declined to comment on the purchase price.
The combined company would be in a strong position to compete for military-rifle and grenade-launcher contracts in the U.S. and Europe, Mr. Rigas predicted. Colt's already makes such weapons and has substantial back orders from the Pentagon, he added. He projected the combined company will have revenue of about $286 million in 2000.
Colt's expects to have 1999 revenue of about $129 million. The West Hartford, Conn., company had expected to turn a small profit this year, but Mr. Rigas said he now anticipates a loss because of restructuring charges related to the shift away from handgun production. Those charges relate to layoffs of about 200 workers, among other things, he explained.
Mr. Rigas strongly denied rumors in the U.S. gun industry that Colt's is seriously considering filing for Chapter 11 bankruptcy-court protection from its creditors. Colt's, which has struggled financially since the mid-1980s, was in bankruptcy-court proceedings in 1994 when it was acquired by the Zilkha group.
The municipal suits are seen by gun foes as a means to force the gun industry to incorporate more safety devices into their weapons and police more aggressively how they are distributed. While decrying the suits as an illegitimate attempt to legislate through the courts, gun company executives have held preliminary settlement discussions with some municipal officials. In an attempt to galvanize those talks, the Clinton administration this month threatened to file its own suit on behalf of public-housing authorities.
Mr. Richardson said Heckler & Koch is profitable but BAE Systems decided to shift away from making smaller military arms and toward larger, more complex weapons.