29 Apr 05. Further to the announcement on 28 January 2005, BAE Systems plc announces the completion of the EuroSystems transaction agreed with Finmeccanica SpA.

The EuroSystems transaction comprised:
* The merger of BAE Systems Avionics Limited and Galileo Avionica SpA to form a new Avionics business owned 75 per cent. by Finmeccanica and 25 per cent by BAE Systems. At completion BAE Systems received the adjusted amount of £374m in cash and will receive a further adjusted amount of £268m upon the exercise after May 2007 of BAE Systems’ put option or the exercise at any time of Finmeccanica’s call option over the 25 per cent stake.
* The dissolution of the 50/50 AMS joint venture of BAE Systems and Finmeccanica. At completion BAE Systems paid Finmeccanica an equalising amount of £50.5m in cash to account for the difference in value between AMS’s UK and Italian operations. In addition, Finmeccanica has acquired AMS’s UK Air Traffic Management business for £6.5m cash and the assumption of debt.
* The sale of BAE Systems’ UK Communications business to Selenia Communications Limited, a wholly owned subsidiary of Finmeccanica, for £25.4m in cash.
The transaction has achieved BAE Systems’ and Finmeccanica’s mutual goals of securing control and clear management responsibility for these significant European defence industry businesses. BAE Systems will now form an Integrated System Technologies business by combining the capabilities of AMS’s UK operations and BAE Systems’ C4ISR Networked Systems and Solutions business.

Following this dismemberment, which appears to be an exceptional deal for BAE getting £600m+ for a ragbag of avionics businesses whose technology is being overtaken in the world’s markets and keeping the core AMS business which the company intends to build a world-class C4ISTAR Systems Integration business, Insyte.

Clive Richardson the new boss at Insyte admitted that previous managements at BAE had been slow to grasp the significance of the C4I business and its potentials in UK and home markets. “We aim to build this business into a £1.5bn business form the current level of £500m,” he told BATTLESPACE Editor Julian Nettlefold, “This will be achieved by sales and acquisitions in key areas of technology. We hope to recover some of the ground lost to competitors. We regard Homeland Security as a key area for development and from our current position as 80% reliant on the U.K. we hope that this will change to 60-40%. The company will be supported by 3000 systems and software engineers working on Open Architecture solutions with COTS or MOTS products. The acquisition by BAE North America of DigiNet is a key indicator of our way forward, we will use, wherever possible the C4I assets we have in the USA.”

When asked about the Falcon business area, he said, “The BAE Falcon bid will remain at BAE. We are hopeful that our solution will be selected although it appears that the MoD has some way to go to announce its solution in spite of recent press comments. (See BATTLESPACE UPDATE Vol.7 ISSUE 15, 15th April 2005, FALCON CREEPS TOWARDS MAIN GATE)

Certainly it seems that at last BAE is forming a coherent strategy for its C4I businesses. The loss of the BOWMAN contract, which Richardson ruefully reflected is now costing the MoD the money BAE projected when it lost the contract, would have been a building block for the Division back in 2000, but with new projects such as FRES requiring extensive C4I architecture, with its AMS heritage, BAE can now move forward with confidence into this area.