General Dynamics to buy Axsys for $643 million

ATLANTA (Reuters) - Defense contractor General Dynamics Corp GD.N, looking to position itself for new business as U.S. military forces shift priorities, said on Thursday that it planned to buy Axsys Technologies Inc AXYS.O, a maker of surveillance and imaging systems, for $643 million.

Axsys shares rose 6 percent to $53.20, below the offer price of $54.

The price represents an 8 percent premium to Axsys’ Wednesday closing price of $50 on the Nasdaq.

The purchase would enable General Dynamics to strengthen offerings in the market for systems that gather, monitor and disseminate intelligence, expected to be a focus as the U.S. Defense Department reshapes priorities to bolster U.S. troops for wars like Iraq and Afghanistan.

General Dynamics, which makes submarines, ships and business jets, also said the acquisition would help it pursue new markets.

"This acquisition moves General Dynamics into the government infrared sector, where it will be competing with FLIR Systems FLIR.O, BAE BAES.L, Raytheon RTN.N and DRS," wrote Macquarie Research analyst Rob Stallard.

In a research note, Stallard said the purchase could be expected to add three to 11 cents to General Dynamics per-share profit for 2010. The companies said the deal would be earnings-neutral in 2009 to General Dynamics and would add to profit thereafter.

“This has been a good growth area over the last few years, with applications in both the military and homeland defense. We expect this to remain an above-average organic growth sector going forward, which will enhance the overall General Dynamics portfolio,” Stallard added.

Defense analysts have said big companies could scout for smaller players with unique technologies as the Pentagon seeks to better equip the U.S. military for irregular warfare.

In March, Reuters had reported that Axsys, based in Rocky Hill, Connecticut, was evaluating a possible sale of the company.

Axsys had more than 11.5 million common shares outstanding as of March 28. A General Dynamics spokeswoman said Axsys had no debt.

The purchase has been approved by boards of both companies, and is expected to close in the third quarter.

General Dynamics shares were up 33 cents at $58.92 in afternoon New York Stock Exchange trade.

Reporting by Karen Jacobs; Editing by Lisa Von Ahn and Steve Orlofsky