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BUILDING A BRIDGE TO EUROPE – U.S. GIANTS EYE U.K.

16 Feb 07. The Times reported today that Boeing and Lockheed Martin are eyeing British defence companies worth more than £5bn in an attempt to win orders from the Ministry of Defence. This story confirms our story below about Northrop Grumman and signals that Europe is soon to be the centre of defence procurement and that U.K. companies are easier to acquire given the Nationalistic views of France and Germany. It also confirms Sir John Rose’s comments that the U.K. is becoming, as it did in 1944, an aircraft carrier for National companies to acquire and build a bridgehead to Europe. Whereas Companies are relocating to leased premises to be near the DPA at Abbey Wood, expect a shift over the water during the next few years to be near the European Defence Agency.

The American defence giants are understood already to have independently approached, and been rebuffed by, Ultra Electronics, the £800m battlefield-IT specialist. This does not surprise BATTLESPACE as Ultra has been eyed for many years but always piles on the debt under any threat of take-over. They are also thought to be weighing potential bids for Cobham, Meggitt and Chemring.

The interest being shown by the Americans has put British defence companies on a
collision course with the Government over the industry’s future.
Industrialists, including Sir John Rose, chief executive of Rolls-Royce, and
Allan Cook, chief executive of Cobham, are concerned that UK plc is being sold
off to foreigners.

The crisis of ownership is being particularly felt in the defence sector after
the introduction last year of the Government’s Defence Industrial Strategy
(DIS), which sets out the future for the military-industrial complex in
Britain.

Lord Drayson, the Defence Procurement Minister, believes that who owns a defence contractor is less important than where it is based. The DIS states that, as long as the scientists, engineers and technicians that build and maintain
Britain’s military infrastructure remain in the country, it matters less where their employer is from.

American companies wanting to win MoD orders are therefore having do so through a UK subsidiary.

Both Boeing and Lockheed Martin have set up UK operations and are expanding these organically but they are also looking for acquisitions.

Lockheed Martin, which had operating profits of $4bn (£2bn) last year, said: “We are a growing company and an ambitious company and we will look to move in the direction of acquisitions if it is appropriate to do so.” Boeing, which had profits of $3bn last year, said: “We are mindful of the DIS and the need to keep intellectual property in the UK but we need the capability to do so. We are looking at the option of acquisitions.” Last week Sir John Rose gave warning that UK plc was under threat from foreign companies using the country as an “aircraft carrier” and raiding profits without investing in the future.

Allan Cook, chief executive of Cobham, told The Times yesterday: “This is about
national defence and it does matter where the shareholders are.

We have to maintain core skills in aerospace and defence.”

The American invasion has already begun with GE’s acquisition of Smiths
Industries’ aerospace division last month. Analysts have been speculating for
some time that Cobham, Meggitt, Ultra and Chemring could be the next targets.
None of these companies was willing to comment.

There has been huge resistance to the idea that not only will the U.K. Armed forces become part of a European Army, “Never!” one former General told BATTLESPACE last week, but that the thrust is for procurement of European Defence Solutions not National Defence solutions and thus the Defence Budgets will become European issues not National, taking the strain off individual country’s budgets. This makes complete sense as there will be larger procurements enabling not only R&D to be spread over a greater budget but huge economies of scale can be gained thus makin

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