A Handshake Becomes A $13.3 Billion Deal Four Days Later Boeing, Mcdonnell Douglas Ceos Met Alone In Seattle

The two corporate chieftains, alone in a Seattle conference room, rose, shook hands and agreed to talk again.

There was no “blinding flash” of light, one recalled, but the gesture virtually sealed a $13.3 billion deal between Boeing Co. and McDonnell Douglas Corp. to merge into an aerospace and defense giant that will build rockets, fighter planes, jumbo jets, commuter shuttles and space shuttles.

Philip Condit, president and chief executive officer of Boeing, and Harry Stonecipher, his counterpart at McDonnell Douglas, had more work to do after their cordial meeting in Condit’s Seattle office. They had to go back to their boards of directors, corporate lawyers and financial advisers to make sure all the details were in place.

Final approval came late Saturday with votes of the two corporate boards. The world got the word at noon Sunday at a news conference in Washington - home of the Defense Department and the National Aeronautics and Space Administration - two of the companies’ biggest customers.

“Bill and I stood up on Tuesday morning and said, ‘We have the basis for a deal that we’re willing to take back to our boards,”’ Stonecipher said Sunday. “We were the only two. Just the two of us in a room.”

Boeing, maker of commercial airliners, and St. Louis-based McDonnell Douglas, the nation’s second-largest defense contractor, had been talking off and on for nearly three years about joining forces. Defense contracts were shrinking and there was trouble in the commercial sector. But the time never seemed quite right. For one thing, a merger two or three years ago would have entailed major layoffs.

“If you looked at three years ago, we were both laying off massive amounts of people,” Stonecipher said. “Two years ago we were both laying off people, and so the fact that we were able to do this without really impacting the work force significantly, that’s really attractive.”

Boeing, the larger of the two companies, made the first move. Boeing’s board authorized Condit last Monday to invite Stonecipher to Seattle for a merger meeting.

“We told the board, ‘Here’s why we think this is a good idea.”’ Condit said. “They said, ‘OK, go for it.’ I mean, you don’t go and have a meeting with Harry ‘til the board says, ‘Yeah, this is a good idea.”’

Condit said it came down to nuts-and-bolts negotiating.

“Harry and I have known each other for a long time,” Condit said. As for the breakthrough, “The candid answer is, there is never the sort of blinding-flash moment. You’re working on issues. What happens if we do this? Does that make sense?”

Of course, the price Boeing was proposing to pay $13.3 billion was a critical issue. Under the terms of the agreement, McDonnell Douglas stockholders will get 0.65 share of Boeing stock for each McDonnell share they own.

Two-thirds of the board of directors will be from Boeing and Condit will run the newly combined company, with Stonecipher as the No. 2. The company will be known as Boeing Co. and have its headquarters in Seattle.

For McDonnell Douglas, the deal appears to alleviate uncertainty about its future that stemmed from the Pentagon’s decision last month to drop it from a three-way competition to build the Joint Strike Fighter. That decision put McDonnell’s future in military aircraft in doubt beyond about 2010.

Boeing remains a competitor for the fighter, along with Lockheed Martin Corp. Under the merger, McDonnell Douglas could be expected to regain a key role in the competition.

“When you step back and look at the blows McDonnell Douglas has taken lately, we knew they’d be looking at things like this,” said Kent Newcomb, an analyst at A.G. Edwards & Sons, a St. Louis investment firm. “I think it certainly strengthens the outlook for the company.”

The companies concluded that the merger will pass muster with federal antitrust regulators. While it reduces the commercial airliner manufacturing business to two companies - Boeing and Europe’s Airbus Industrie consortium - McDonnell’s share of that market was already shrinking. In space and defense contracting, the two firms have complementary rather than overlapping capability.