BAE lands £2.2bn US takeover

DEFENCE euipment group BAE Systems planted its flag firmly at the centre of the massive US defence market today by unveiling a $4.1bn (£2.2bn) takeover of Bradley armoured fighting vehicles maker United Defense Industries.

The deal, in cash and part-funded by a £375m share placing, is BAE's biggest in six years. It also means that for the first time the US Department of Defense, not Britain's Ministry of Defence, is the company's largest customer.

'This is all about BAE delivering on its strategy of becoming the premier transatlantic defence and aerospace contractor,' said a spokesman.

BAE is paying $75 a share in cash for UDI, formerly controlled by Carlyle Group, the US private equity investor whose directors used to include former British Prime Minister John Major.

The deal is the biggest pulled off by BAE chief executive Mike Turner, who has made no secret of his desire to line up the company as a much more US-centred international arms seller. It is also the largest by BAE in its present guise after the 1999 merger of the old British Aerospace with GEC's Marconi defence businesses.

BAE's North American business will now contribute about a third of group profits, and UDI's importance as a contractor to the US armed forces means America's Department of Defense now accounts for the largest share of BAE's business on an annual basis.

UDI is best-known for its design and production of Bradley fighting vehicles, the small tanks that have played such a high-profile role in Iraq in their attempted peacekeeping role and as escorts to the US army's heavy-duty Abrams tanks. UDI also makes howitzers and provides all the guns for the US navy.

{2} BAE's existing armoured vehicles business, centred on Challenger tank manufacturer Alvis which BAE won control of last year after trumping a rival bid from Abrams maker General Dynamics, will now be subsumed into BAE's enlarged land systems-business to be headquartered in the US.

The deal illustrates BAE's tracing of the shift in global defence spending from highly sophisticated 'star wars' type projects to war on the ground.

'The combined business creates a leading international position in the fast-growing land systems sector,' said the company. 'As a result of the global war on terror and ongoing operations in Iraq and Afghanistan, the US Department of Defense has significantly shifted its priorities and budget towards land systems.

'The armed conflicts in Afghanistan and Iraq have underscored the importance of land systems within the context of military operations. This is reflected in emerging defence spending trends.'

BAE shares slipped further from recent two-and-a-half-year highs, down 9p to 241p.