BAE Systems is expected to use the proceeds from selling its Airbus stake to finance further defence acquisitions in the USA. Speculation has centred on L-3 Communications, but some reports suggest BAE believes such a deal would not be beneficial.
Acquiring L-3, which had sales of $9.4 billion last year, would vault BAE’s North American arm into the top tier of US defence contractors, just behind Raytheon and General Dynamics, but recent changes in BAE’s business mix make such a tie-up look less attractive than it once was.
In L-3’s place, names being mentioned include Rockwell Collins and Harris, both of which have a substantial involvement in the networking of US forces – a market BAE regards as key. Whether BAE would be allowed to bid for rival electronic-warfare specialist ITT Defense or ammunition supplier Alliant Techsystems is unclear, but the company’s previous acquisitions of key US defence companies have been approved.
L-3 chairman Frank Lanza has said only BAE or Thales could sensibly bid for his company because of their portfolios. Analysts say BAE and L-3 discussed merging in 2002, but could not agree a price. The UK company instead bought US armoured vehicle manufacturer United Defence Industries (UDI) last year for $4 billion. That acquisition boosted the US share of BAE’s sales to 26% in 2005, but it also tilted the North American business away from its origins as a product provider, towards platform supply and system integration. L-3 is also moving towards becoming an integrator, but remains predominantly a products supplier.
Analysts believe BAE would face a challenge in integrating L-3, which is a loose aggregation of more than 40 companies that has grown by acquisition since it was formed following Lockheed Martin’s takeover of Loral. If BAE had to sell several of L-3’s businesses, it would reduce the value of the acquisition.
BAE is also looking to buy into the government IT market, but competition is keen. L-3 last year acquired Titan, a major US government information systems and services provider, for $2.65 billion – its biggest acquisition to date.
GRAHAM WARWICK / WASHINGTON DC
Source: Flight International
