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11 Sep 10. BAE Systems to Sell Commercial Aerospace Assets. BAE Systems PLC has put parts of its North American commercial aerospace business up for sale in an auction that could fetch up to $2bn, people familiar with the matter said. One of the units on the block makes aircraft-engine controls for General Electric Co. The other units include a commercial avionics business and a division that makes hybrid propulsion systems for buses and trucks, the people familiar with the matter said. These units are grouped together under “platform solutions,” a business that sells various control systems used in commercial and military aircraft and ground vehicles. Collectively, the units have roughly $200m in earnings before interest, taxes, depreciation and amortization, or EBITDA, the people said. The seller could seek between $1.6bn and $2bn, they added. BAE’s financial advisers, J.P. Morgan Chase & Co and Wells Fargo & Co., have sought initial offers for the assets by next week, the people familiar with the matter said. They added that rival aerospace and industrial component manufacturers such as Rockwell Collins Inc., Woodward Governor Co. or Moog Inc., as well as private-equity firms such as Warburg Pincus, Carlyle Group and transportation-focused shop Greenbriar Equity Group LLC, could be interested buyers for all or some of the assets. Initial bids are due for the entire business unit, but BAE may decide to sell the pieces separately if there are no takers for the entirety, the people familiar with the matter said. Representatives for BAE, J.P. Morgan and Wells Fargo declined to comment. BAE Systems had $36.2n in sales last year, making it the world’s second-largest defense company by revenue. The company is headquartered in England but has a large U.S. business through its BAE Systems Inc. subsidiary. In recent years, BAE has disposed of some of its smaller, legacy aerospace businesses while acquiring more defense technology assets. Like its competitors, including Lockheed Martin Corp. and Northrop Grumman Corp., BAE benefited from wartime spending, with the Pentagon’s budget at roughly $700bn this fiscal year. But expected cuts in defense spending by the British and U.S. governments could hit these companies’ sales. As it seeks to combat these cuts by pushing into emerging markets, BAE’s U.S. arm has also embarked on a broad restructuring, cutting jobs, rejigging business units and shedding a management layer. Diversified industrial companies occasionally engage in house-cleaning by putting up assets they deem “noncore” for sale. Danaher Corp., which makes everything from wrenches to dental X-ray machines, is in the process of soliciting buyers for its aerospace and defense business unit, according to people familiar with the matter. And defense contractor Lockheed is running an auction for two small units that could fetch around $1.5bn, other people familiar with the matter said. BAE’s digital engine controls business makes highly sophisticated systems that control and monitor aircraft engine performance. GE is a major customer, and any buyer would likely be expected to continue the arrangement with the industrial conglomerate, the people familiar with the matter said. BAE’s commercial avionics business – bought from Boeing Co. in 2004 – makes aircraft components that help with navigation and surveillance. The third unit, which is smaller but has a higher growth rate, makes power and energy-management systems for public-transport vehicles that increase efficiency and reduce emissions. Together, the units had about $1.3bn in annual revenue, people
familiar with the matter said. As mature businesses with stable cash flow, these units could be attractive to private-equity firms, many of which are active in aerospace and defense-related deal-making. Earlier this year, buyout firm JLL Partners put one of its companies, McKechnie Aerospace, up for sale and expects to fetch around $1.2bn from another buyout firm such as Carlyle, Go

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