BAE Systems to Acquire United Defense Industries
BAE Systems, Europe’s biggest defense company, agreed to buy United Defense Industries Inc. for $3.97 billion to tap demand for artillery and armor, including the Bradley Fighting Vehicle used by the U.S. in Iraq.
BAE will pay $75 a share in cash for Arlington, Va.-based United Defense, 29% more than the closing price Friday.
The purchase, the biggest ever of a U.S. defense firm by a foreigner, will make London-based BAE the Pentagon’s sixth-largest contractor amid efforts to upgrade the Army’s land-fighting capability. It comes after Chief Executive Mike Turner bought five U.S. defense firms in 2004. United Defense shares rose $15.09, or 26%, to $73.35 on the New York Stock Exchange.
United Defense boosted revenue from the Bradley vehicle last year by 26% to $368.9 million. Revenue from the Bradley program accounted for 16% of United Defense’s total 2004 sales of $2.29 billion.
Conflicts such as those in Iraq and Afghanistan are spurring spending on tanks and armored vehicles in the U.S. and Europe. Among BAE’s acquisitions last year was Alvis, a maker of the U.K. Challenger II battle tank.
The purchase would give BAE access to the fastest-growing areas of the U.S. defense budget, “where priority is clearly being given to the U.S. Army” with a focus on armored vehicles and other land-based combat systems, Turner said during a conference call.
United Defense designs and develops combat vehicles, artillery systems, naval guns, missile launchers and precision munitions, all equipment used by the U.S. Army. The company employs 8,000 people in the U.S. and Sweden. United Defense’s shares closed at $58.26 on Friday.
“We’re very comfortable with what we paid,” Turner said. “We think it’s a fair price.” BAE had been trying to buy United Defense for some time against other bidders, Turner said, declining to name the competing suitors.
Armored vehicles such as the Bradley are used in Iraq and Afghanistan to protect soldiers being transported on the battlefield from explosives and rocket-propelled grenades.
United Defense is among companies that would benefit from President Bush’s proposal to spend $419.3 billion on defense next year. It will be heavily involved in the effort to expand to 43 from 33 the number of highly mobile U.S. Army combat brigades that are effective against guerrilla forces and can be transported rapidly to conflicts.
