In a proposal that would combine two major defense electronics contractors, Loral Corp. yesterday offered to purchase Sanders Associates Inc., one of its primary competitors, for $44 a share, or about $860 million.
Jack Bowers, chairman and chief executive of Sanders, rejected the offer as "inadequate." However, he said he has asked the company's outside legal counsel and Kidder Peabody & Co. to examine the offer.
Sanders stock jumped $16 yesterday, closing at $50.50, which made it the most active issue on the New York Stock Exchange. The run-up past the offer price suggests that investors think Loral will have to raise its offer.
Analysts said the bid, if successful, could set off a series of mergers in the high-tech defense industry.
"There never has been a successful hostile takeover of a major defense contractor," said Peter Aseritis, an analyst for E. F. Hutton. "If this happens, the whole industry goes into play."
Bernard L. Schwartz, chairman and chief executive of Loral, said he was disappointed that Bowers declined to talk. "I don't think this is a constructive way to open a dialogue," Schwartz said. He added that if Sanders hasn't responded by Monday morning, he will consider taking the offer directly to shareholders.
Sanders, based in Nashua, N.H., reported revenue last year of $885.8 million and net income of $37.1 million. Loral, of New York, had revenue of $663.8 million last year and net income of $52.9 million. Both companies manufacture electronic warfare equipment.
The proposed merger goes against the Pentagon's new goal of more competition for its contracts. Analysts said the Defense Department may oppose the proposal.
"The market seems to indicate that the offer is a good one and that it is being taken seriously," Schwartz said. "But that's not the response I'm getting from Sanders' management."
Aseritis, however, said the market reaction indicates investors think the offer is too low. He added that he expects Sanders stock to continue climbing, possibly as high as $65 a share. The increase would enable Sanders to search for other suitors, the analyst said, because Loral is unable to pay much more than $50 a share.
Schwartz said the deal's financing -- offered half in cash and half in Loral "equity securities" -- has not yet been arranged.
Boeing Co., Lockheed Corp., Litton Industries and Chrysler Corp., which have expressed interest in buying defense electronics companies, could offer more than $60 a share, Aseritis said. But, because of the Pentagon's goal of stimulating more competition, Chrysler would have the best chance of acquiring Sanders, he said.
He argued that the only way Sanders can be certain to remain independent would be if the Defense or Justice department steps in.