BAE plans US sale to fund acquisition war chest

By Sarah Arnott
Sunday 23 October 2011 08:50

BAE systems is looking for buyers for its Platform Solution aircraft avionics business headquartered in New York.

The defence giant said yesterday it has appointed Wells Fargo and JP Morgan to advise on "strategic options", which may include sale of all or part of the business.

Platform Solutions makes avionics systems for both commercial and defence aircraft, as well as components for low-carbon hybrid buses. BAE indicated that the possible disposal of Platform – which employs 4,200 people, some 1,450 of them in Rochester in Britain – is part of the company's continuing reassessment of its component parts.

"The company regularly reviews its business portfolio to ensure it is delivering the best value for shareholders and customers," BAE Systems said in a statement to the Stock Exchange.

Insiders say that Platform Solutions – although a "really good business" that has "shown a really good track record of growth" – is considered by BAE Systems to be "non-core", particularly in the light of shifting defence priorities and looming budget cuts on both sides of the Atlantic.

In Britain, next month's government spending review is expected to slice as much as 15 per cent out of defence spending, and the Strategic Defence Review due before the end of the year will reshape longer-term priorities.

Currently, BAE Systems derives just less than half its global revenues from support services such as maintenance and upgrades and ship repairs. But its chief executive, Ian King, wants to expand both the services business and the group's cybersecurity, intelligence and national security division – areas considered to have strong growth potential regardless of tightening defence spending.

At this early stage, Platform's potential value is estimated anywhere between £650m and £1.3bn. And reports tip a long list of potential buyers, including the aerospace groups Goodrich Corporation, Rockwell Collins and Moog, and private equity houses including Carlyle Group, Greenbriar and Warburg Pincus.

Any funds raised from the sale of Platform Solutions are likely to be used for acquisitions to bolster either the support services or cybersecurity businesses. And the most likely targets are in the US, both because the market is larger and because BAE has already bought a UK national security specialist, Detica, for £538m in 2008.

Last week BAE Systems revealed plans for 740 job losses at its military aircrafts division in Britain, on top of 200 announced last year, and is now going ahead after the necessary consultation period. BAE says that the redundancies are partly in anticipation of spending cuts, and also reflect the usual ebb and flow of the business.

But analysts say the job cuts, the possible sale of Platform Solutions, the group's sale of half its stake in Sweden's Saab fighter aircraft group earlier this year, and the designation of India as BAE's seventh so-called "home market" in 2009, should all be seen in the context of the anticipated budget squeeze.

"This is all part of the same picture as the group continues to focus on emerging markets such as India and Saudi Arabia and to expand into broader areas such as national security," Tina Cook, at Charles Stanley, said. "The possible sale of Platform is a strategic move as BAE makes sure it conforms with the changing priorities in both US and UK."

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