| Flying high
London, March 7 (Reuters): BAE Systems, Europe's biggest defence company, agreed to buy US firm United Defense Industries for $3.974 billion in cash on Monday, bolstering its land systems business and its foothold in the United States.
BAE said it would pay $75 a share for the maker of the Bradley Fighting Vehicle, a premium of 29 per cent over United Defense's close of $58.26 on Friday.
'We are very comfortable with the price we have paid, we think it's a fair price,' BAE chief executive Mike Turner told reporters on a conference call, noting United Defense's rapid growth and profitability.
BAE has set its sights on the land systems sector, buying UK-based Alvis last year and now United Defense as it positions itself for army modernisation programs in the United States and UK.
More than 7,000 Bradley vehicles already in service also offer lucrative maintenance and upgrade opportunities. 'We do see this as a big improvement in the risk profile and the quality of the profits of the group,' BAE group finance director George Rose said on the conference call.
He noted that North America generated 25 per cent of BAE's profits last year, but would have contributed about a third on a proforma basis if United Defense was included.
BAE said it would finance the deal with a new $3-billion debt facility and a placing of around '375 million ($715 million) in shares. Turner said BAE had won out over 'a number' of other firms seeking to buy United Defense. 'It was a competitive process. We had a busy weekend.'
BAE said in a statement: 'As a result of the global war on terror and ongoing operations in Iraq and Afghanistan, the US department of defence has significantly shifted its priorities and budget toward land systems.'
BAE said it expected the deal to close in mid-2005 and immediately boost earnings, with a step up expected in the first full year following completion.