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BAE CLOSE TO DEAL WITH UNITED DEFENSE

07 Mar 05. The Wall Street Journal reports today that BAE SYSTEMS has agreed to buy United Defense Industries Inc., maker of the Bradley Fighting Vehicle, for $3.97bn. A deal, if completed, would mark the biggest recent move by a European defense company to boost its presence in the U.S., which is by far the world’s biggest buyer of military equipment. BAE said the deal will be financed mostly through a placement of 150 million new shares, which is expected to raise £375m ($721.3m or €544.8m), before expenses, a new debt facility of $3bn. The transaction includes the assumption of $218 million in UDI debt.

UDI shareholders would receive a premium of roughly 30%. Spokesmen for BAE and UDI both declined to comment. The deal was in its final stages last night, but could still fall apart, these people warn.

An acquisition of United Defense, of Arlington, Va., would catapult BAE, which is already the largest foreign contractor to the Pentagon, far ahead of all non-U.S. rivals. BAE, based in London, is already major European maker of combat vehicles; the deal would deepen BAE’s presence in the rapidly expanding and much larger U.S. market. The U.S. fleet has been deteriorating amid service in Iraq, Afghanistan and elsewhere, and spending on such vehicles is expected to increase as part of the Pentagon’s huge modernization program, called Future Combat Systems. European defense companies have lately been on a buying spree in the U.S. Last year alone, companies like BAE, Smiths Group PLC and European Aeronautic Defence & Space Co. spent about $1.5bn on a dozen acquisitions. A UDI deal would be the largest and most important trans-Atlantic defense deal struck in recent years.

United Defense Industries also develops a range of other military systems, including howitzers, guided missiles and precision munitions. The company also provides ship repair and modernization services. It is unclear what regulatory hurdles BAE might face, though last year it successfully acquired four U.S. defense contractors. BAE provides information technology and electronic systems to the U.S. military, among other things.

Shares of United Defense have nearly doubled in the past 12 months and ended regular trading Friday just cents off their 52-week high. At 4 p.m., in New York Stock Exchange composite trading, UDI shares were at $58.26, up $1.25, or 2.19%, for the session. In London, BAE Systems fell 0.5% to 250 pence ($4.81).

BAE Systems has been steadily increasing its U.S. business in recent years. The company has for years been ambitious about increasing its reach in the world’s largest market for military equipment and services, and has even talked about large mergers with industry titans such as General Dynamics Corp.

Headquartered in Arlington, Virginia, United Defense operates divisions throughout the United States. Realizing the benefits of working with experts throughout the design, manufacture and support of weapons delivery system products and services, United Defense also works with additional partners and field offices across the nation and the world. Our divisions include:
United Defense, L.P.
* Armament Systems Division (ASD)
* Ground Systems Division (GSD)
* Steel Products Division (SPD)
* CTC
* International Division

United Defense Industries, Inc.
The following companies are wholly or partially owned by United Defense:
* United States Marine Repair
* Bofors Defence
* Cercom Inc.
* FNSS
* Kaiser Compositek, Inc.

Comment: In our BATTLESPACE UPDATE Vol.6 ISSUE 41, IS THE BOEING FUTURE COMBAT SYSTEMS PROJECT SPIRALLING OUT OF CONTROL?, we discussed the very possibility of BAE taking over United Defense.

‘One source close to BATTLESPACE suggested that the UK would continue its own development of FRES without involvement with FCS and that BAE SYSTEMS and its team may be in a position to take up some of the slack if FCS goes wrong. The same source also suggested a possible BAE takeover o

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