BAe buys Lockheed unit for £320m to raise profile in US

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The Independent Online

BAE Systems, the former British Aerospace, yesterday boosted its presence in the United States with the $510m (£320m) acquisition of a control systems business from rival Lockheed Martin.

The cash purchase will also further BAe's move into the electronic end of the defence and aerospace industry. It has been distancing itself from its traditional image of British aircraft manufacturer.

John Weston, chief executive, said: "This [purchase] is consistent with our overall strategic intent of being the benchmark global systems, defence and aerospace company.

BAE's big leap in scale in US operations came with last year's near £8bn acquisition of Marconi's defence interests. Prior to that deal, BAE's employed just 1,500 people.

BAe is also looking at a larger target, Lockheed's Sanders unit, which has been put up for sale. Sanders, which has annual sales of $1.2bn and makes electronic warfare equipment such as radar jammers, is likely to fetch a much higher price than Lockheed Martin Control Systems. The sale of Sanders has attracted considerable interest, with around eight firms believed to be considering making an offer.

Its sale is thought to be some weeks off.

Nick Cunningham, an analyst at Salomon Smith Barney, said that BAe needed to increase its footprint in the US, in order to gain credibility as a defence contractor in the eyes of the Pentagon, and to gain political clout in Congress.

"For a company of BAE's size, this really should be seen as a bolt-on deal. Whether or not Sanders comes off, I think we'll see more of these medium to large size bolt-on acquisitions in the US," Mr Cunningham said.

The Control Systems business, which provides electronic engine and navigation controls, had sales last year of $359m.

Andy Wrathall, director of investor relations at BAE, said that the acquisition was less costly than it appeared, as it allowed around $80m to be written off against tax. The deal requires regulatory clearance.

Control Systems has 1,750 employees in New York state and Indiana, and it takes BAe's North American workforce to 20,000. The British company employs over 100,000 people worldwide, including 70,000 in the United Kingdom.

Lockheed will use the sale proceeds to pay down its heavy debt. BAe is freer to make cash acquisitions because it is less highly geared than US rivals, analysts said.

BAe is expected to be debt-free by the end of this year.

Shares in BAe rose 6.75p to 154.5p.

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