BAE boosts armored vehicle business with Armor Holdings buy
CHEVY CHASE, Md. (AP) – Defense contractor BAE Systems Inc. will buy military armored vehicle maker Armor Holdings Inc. for $4.1 billion, part of BAE’s bid to tap into heavy demand from the American military for vehicles in Iraq and other war zones, the company said Monday. BAE Systems Inc., an American subsidiary of the British defense conglomerate BAE Systems PLC, will pay $88 per share for the Jacksonville, Fla.-based Armor Holdings, a 7 percent premium over the closing price of company shares Friday. Including $388 million in debt, the deal is worth $4.5 billion.
Shares of Armor Holdings rose $4.45, more than 5 percent, to $86.60 in Monday trading after the takeover was announced.
The deal expands BAE’s presence in the potentially lucrative market for armored Humvees, personnel carriers and other military equipment that can withstand repeated roadside bombings and insurgent attacks in Iraq and Afghanistan.
In 2005, BAE bought United Defense, maker of the Bradley tank, for roughly $4 billion. With the Armor Holdings deal, it gets a company that posted $2.4 billion in sales last year, much of it from wheeled vehicles such as armored trucks, Humvees with extra armor, and equipment that protects soldiers from mine blasts and ambushes.
“This greatly expands their capabilities in force protection and wheeled vehicle manufacturing,” said Tim Quillin, an analyst with Stephens, Inc.
That market is expected to expand quickly, both to replace beaten-up and worn out wheeled vehicles and to build new equipment for the military. BAE said Armor Holdings could potentially produce up to 60,000 vehicles in the next ten years. Quillin estimated the market to replace all wheeled military vehicles over the next 20 years could be worth up to $50 billion.
The deal is scheduled to close in the third quarter, but must first pass antitrust review and scrutiny by the Committee on Foreign Investment in the United States, which reviews transactions that could have national security implications.
A spokesman for the committee, chaired by the Treasury Department, declined to comment on the transaction.
BAE officials said they didn’t expect any problems with either review.
“We are extremely confident in terms of the transition proceeding through the regulatory process,” said BAE spokesman John Measell.
The company successfully acquired Arlington, Va.-based United Defense.
Measell said it was “premature” to discuss whether the takeover would lead to job cuts, but said BAE’s “history is to expand and invest in businesses.”
The Rockville-based BAE Systems Inc. subsidiary already has roughly $10 billion in annual sales, and the company predicts that the addition of Armor Holdings will increase U.S. sales by $3 billion.
Armor Holdings officials did not immediately return a call seeking comment. In a statement, company president Robert Schiller said Armor Holdings was “excited to move this business to the next phase of its development.”
Armor Holdings was created in 1996, focusing primarily on body armor for law enforcement. Through a steady string of acquisitions, the company added businesses that include safety seats for military pilots, private armored cars and police equipment such as handcuffs. In 2006, it bought Stewart and Stevenson Services, Inc., a prime military contractor for wheeled vehicles.
The BAE deal will also likely lead to big profits for Armor Holdings executives. According to the company’s recently filed proxy statement, Chief Executive Warren Kanders will receive $35 million in pay, bonus, the vesting of stock options and other costs whether or not he stays with the company. Robert Schiller, the company’s president, would receive $20 million.
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AP Business Christopher S. Rugaber in Washington contributed to this report.
AP-ES-05-07-07 1618EDT