LONDON - Europe's BAE Systems has agreed to buy US rival United Defense Industries for US$3.974 billion ($5.42 billion) in cash to bolster its position in the fast-growing land systems sector.
BAE, Europe's biggest defence company, said it would pay US$75 a share for the maker of the Bradley FightingVehicle and finance the deal with a new US$3 billion debt facility and a placing of around 375 million ($987 million) in shares.
"The combined business creates a leading international position [in the sector]," BAE said.
"As a result of the global 'war on terror' and ongoing operations in Iraq and Afghanistan, the US Department of Defence has significantly shifted its priorities and budget towards land systems," it added.
BAE said it expected the deal to close in mid-year and immediately boost earnings, with a step-up expected in the first full year following completion. It will also deliver returns higher than BAE's cost of capital in 2007, the firm said.
Analysts said the deal made good strategic sense. "Apart from the valuation, which looks slightly on the high side, everything else stacks up," said SG analyst Zafar Khan.
Dealers said they expected BAE shares to open down by about 2 per cent to 3 per cent - more as a result of the placing than in reaction to the deal.
"As much as you expect shares to come south after a placing they're not placing that much and generally I don't see why it should be taken that badly at all," said one trader, noting the deal would fulfil BAE's goal of beefing up its US presence.
UDI designs, develops and produces combat vehicles, artillery systems, naval guns, missile launchers and precision munitions, used by the US Department of Defence and other countries. It made US$2.29 billion in saleslast year.
BAE is primarily a defence firm, although it owns 20 per cent of civil plane maker Airbus. Including net debt of $218 million, the deal values UDI at $4.19 billion.
