Posted on 03/07/2005 12:45:10 AM PST by Pro-Bush
BAE Systems to buy UDI for $4.2 bln Largest transatlantic defense deal in recent years By Aude Lagorce, MarketWatch Last Update: 3:35 AM ET March 7, 2005
LONDON (MarketWatch) -- BAE Systems, Europe's largest defense contractor, said Monday it has an agreement to buy United Defense Industries, the Bradley tank maker, for $3.97 billion in cash and $218 million in debt assumption.
The deal values Arlington, Va.-based United Defense Industries, Inc., (UDI: news, chart, profile) which also makes artillery systems, naval guns and missile launchers, at $75 a share, setting a 29 percent premium to the UDI close Friday at $58.26.
BAE shares were last down 3.6 percent in London morning trade.
The acquisition, if approved by regulators, would ensure that Britain's BAE Systems (UK:BA: news, chart, profile) , which is already the largest non U.S. contractor to the U.S. Department of Defense, remains well ahead of rivals.
"UDI is not the top of the tree, but on the other hand, from a strategic point of view, it's the right decision for BAE Systems," said Doug McVitie of Arran Aerospace. "They haven't been attractive to world-class players themselves, so settling for a larger fish in a smaller pond is the realistic thing to do."
BAE said it will finance the deal through the placing of 150 million new ordinary shares, expected to raise about 375 million pounds ($720 million), and a new debt facility of $3 billion.
The British company said expects the deal to be immediately accretive to earnings. UDI generated sales in 2004 of $2.3 billion; the contractor employs around 8,000.
In the Bradley tank division alone, BAE said the 2005 U.S. defense budget and supplemental request includes around $1.3 billion for resets and upgrades to the fleet.
British defense companies like BAE and Smiths Group (UK:SMIN: news, chart, profile) and the French-led European Aeronautic Defense & Space Co. (FR:005730: news, chart, profile) have recently bought small and largely defense technology-related firms in the U.S. as a means to contracts from the Pentagon. The UDI acquisition would be the largest transatlantic defense deal struck in recent years.
BAE spent $800 million in 2004 to buy five U.S. defense companies, the largest of which was DigitalNet, an IT group, for $616 million.
"We will continue to grow our business in North America both organically and through acquisitions," BAE's Chief Executive Mike Turner told analysts last month.
BAE is focused on "trying to deliver on the strategy we've had for some time... a trans-Atlantic strategy," Turner said. "We're not going to play in (speculation over European defense consolidation)... The real growth market is the United States."
From the perspective of the European defense industry, McVitie expects that BAE's deal this week likely means there won't be a single European giant.
"The acquisition is an irreversible step toward the U.S," he said. It could well mean that they will remain a minority shareholder in Airbus "for perpetuity." EADS is the majority owner in Airbus, a rival to Boeing Co. (BA: news, chart, profile) .
The French government has been supportive of consolidation in the European defense industry.
The U.S. defense market is the largest in the world, with a budget at around $400 billion that's projected to grow to around $500 billion in the next five years. BAE says it's among top ten suppliers to the U.S. military.
Aude Lagorce is a reporter for MarketWatch in London.
Strange!! Bofors,the Swedish company used to be wholly owned by UD.
Ooooo! Sweet capitalism, bought UDI at $32 in 2004. and thought that maybe it wasn't such a good idea as it languished in a narrow trading band for eight months. The run-up to $58 has been since November. This'll knock a couple of weeks off the retirement schedule,
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