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BAE REPORTS RESULTS AND MAKES ACQUISTION

BAE REPORTS RESULTS AND MAKES ACQUISTION – FOR SALE SIGN COMES DOWN?

11 Sep 04. This is a busy time for BAE SYSTEMS. The company announced results in line with expectations on although the huge writedown on the C4I assets from the former Marconi reflects City concern at the time of the acquisition that the company had overpaid. The price demanded initially by BAE also caused the delay in the EUROSYSTEMS project as Finmeccanica wanted a fairer plying field, and got it!

The poker game being played with the company’s shipbuilding interests, more PR focused than financial, which now do not appear to be for sale after all, and the continued rumours about the sale of the entire company must have played havoc with the management of the individual divisions, particularly Future Systems. Planning for 2005 and beyond in shipbuilding must have been a nightmare scenario which could only create management disruption and possibly loss of future export business. The long term view still seems to be that the Surface Ship division will end up as an ‘EADS-like’ structure as a pan-European shipbuilding and systems business. Whilst good for the BAE interest in the long run in giving a longer business stream, the smaller yards in Scotland such as Govan and Yarrow on the Clyde would be vulnerable from competition from its larger VT-owned South-East yards.

Dick Olver appears to have grasped the nettle and is expanding the company by acquisition in the US, announcing the acquisition of DigitalNet Holdings on September 11th. This will strengthen the already profitable North American operations and focus the business further to NEC and Homeland Security. The biggest management challenge will be to tidy up the UK platform businesses, already enlarged with the new land Systems Division where BATTLESPACE believes that US heavyweight Ken McGinty will soon join from Lockheed Martin to strengthen the FRES offerings and bring his knowledge of the US market and R&D to bear with colleague Jim Orde who spearheaded the BAE TRACER/FSCS bid, a strong team.

The EUROFIGHTER problem has to be solved, not only for BAE’s comfort but for the hundreds of sub-contractors who are now being affected by these delays. BAE’s hardball style is hurting sub-contracts and with the expected announcement today of the closure of the Jaguar Brown’s Lane plant, Tony Blair will be pushing Gordon Brown and Geoff Hoon for an announcement before more job losses come on the 2000 here.(See COBHAM VULNERABLE TO TAKEOVER AFTER RESULTS?)Olver’s style, coming from BP, appears to be a quiet approach and having lost its big hitter Dick Evans, the existing BAE Board may change track from its image often referred to as the ‘Warton Mafia’ to a Board with broader business ideas and interests. This capability will then focus the Divisions and their management and marketing structures which may rid the company of its current perceived arrogant standpoint. The appointment of Sarah Hirsh, previously with BP’s Advertisement Agency appears to be focusing the current PR and Advertising approach which at present spends less than a small Plc, relying more on political clout than on-term image building. One BATTLESPACE observer said that the naming of the company to the rather bland BAE SYSTEMS enabled the logo to be changed to BOEING SYSTEMS once the Chicago-based giant had purchased the company! The company has enormous heritage and capabilities particularly in the US where it is winning huge business on JTRS in particular.

The agreement by BAE Systems North America to enter into a definitive merger agreement values DigitalNet at $30.25 per share for a total cash consideration of approximately $600m with the assumption of DigitalNet’s debt of $93.25m. DigitalNet’s capabilities will complement BAE Systems North America’s significant presence in managed information technology and information assurance, and enhance its ability to address evolving U.S. national security priorities for network cent

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