BAE Systems goes on €2bn US spending spree

UK-based defence company BAE Systems has announced that it is spending $2.2-billion (€1.98-billion) to expand its electronic systems operations in the US by purchasing two businesses that are being sold as a result of the merger between Raytheon and United Technologies.

BAE is to purchase the military GPS business of its US competitor Collins Aerospace for $1.93-billion (€1.74-billion), which is part of United Technologies, as well as an airborne tactical radios unit from Raytheon for $275-million (€248-million). The purchases are both dependent on the successful completion of the two companies' $120-billion (€108.2-billion) merger.

A statement released by BAE said that the GPS business provides important military systems and its products are used on a wide range of US military platforms including the two highest volume weapons programmes for the US Air Force.

In the first major deal since he took over as CEO at BAE Systems in 2017, Charles Woodburn said the company was taking advantage of the requirement for the two companies to divest certain assets in order to allow regulatory clearance in order to complete the merger.

“It’s rare that two businesses of this quality, with such strong growth prospects and close fit to our portfolio, become available,” said Woodburn in a statement. “The strategic and financial rationale is strong and these proposed acquisitions, which are focused on areas of highest priority defence spending, will further enhance the group’s opportunity for continued growth in electronic systems.”

BAE shares climbed by nearly 3% in early trading today as markets began to react to the news. 

Collins GPS business designs and manufactures next-generation M-Code technologies which have been mandated by the US Congress to be included on all military equipment that requires GPS after October 2020. 

The radios unit designs and produces communication systems to the US government and other defence aircraft manufacturers.

The larger purchase will be financed by new external debt and the smaller will be paid for with existing money. Both acquisitions will immediately boost BAE's earnings and will create tax benefits, respectively, of $365-million (€329-million) and $50-million (€45-million).

The merger between Raytheon and United Technologies is expected to be completed in the first half of this year, with the BAE acquisitions due for completion in the second half.

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