TIDMBA.
RNS Number : 2847A
BAE SYSTEMS PLC
20 January 2020
THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION FOR THE PURPOSES
OF ARTICLE 7 OF REGULATION (EU) NO 596/2014 - FOR IMMEDIATE
RELEASE
20 January 2020
BAE Systems plc - Proposed acquisition of Collins Aerospace's
Military Global Positioning System business and Raytheon's Airborne
Tactical Radios business.
BAE Systems plc ("BAE Systems" or the "Company") announces that
it has entered into a definitive Asset Purchase Agreement to
acquire Collins Aerospace's Military Global Positioning System
business ("GPS business") for $1.925bn in cash, subject to
customary closing adjustments. As an asset purchase there is an
expected tax benefit[i] of c.$365m.
The Company has also entered into a definitive Asset Purchase
Agreement to acquire Raytheon's Airborne Tactical Radios business
("Radios business") for $275m in cash, subject to customary closing
adjustments. As an asset purchase there is an expected tax
benefit[ii] of c.$50m.
Completion of both acquisitions are subject to successful
closure of the Raytheon-United Technologies Corporation (UTC)
merger, as well as customary regulatory approvals and
conditions.
These two proposed acquisitions represent a unique opportunity
to purchase high quality technology based businesses with market
leading capabilities and long histories of pioneering innovation in
their fields. These assets have come to market as part of the
regulatory process relating to the merger of Raytheon and UTC. Both
businesses are highly complementary to our US-based Electronic
Systems business and on completion they would be integrated into
our Electronic Systems division.
Both businesses have strong growth outlooks driven by close
alignment with the priorities outlined in the US National Defense
Strategy, Congressional mandates to upgrade existing capabilities
and a presence on a substantial installed base of products and
platforms in the US and with allied nations. Both transactions
would be expected to be immediately earnings and cash
accretive.
Commenting on today's announcement, Charles Woodburn, Chief
Executive of BAE Systems said:
"These proposed acquisitions present a unique opportunity to add
high quality, technology focused businesses to our Electronics
Systems sector. It's rare that two businesses of this quality, with
such strong growth prospects and close fit to our portfolio, become
available. 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. We look
forward to welcoming the employees of the two businesses to the
Company, as we work together to help drive our business forward
successfully."
Proposed acquisition of Collins Aerospace's Military Global
Positioning System business ("GPS business")
Highlights
-- Global leading provider of mission critical military GPS receiver solutions
-- Installed base on over 280 different platforms across ground,
air and individual weapon systems
-- High growth potential from strong positioning for next generation technology development
-- Revenue CAGR of 10% + over the next four years with sustained margins expected
-- Margins, earnings and cash expected to be immediately accretive
-- ROIC > WACC expected in 3(rd) full year post completion
-- Highly complementary fit to enhance Electronic Systems technology and existing capabilities
-- All cash consideration, to be funded by new external debt
GPS business
The GPS business is the leading provider of mission critical
military GPS receiver solutions and has been a pioneer in military
GPS receiver markets for over 40 years. Today it designs and
produces advanced hardened and secure GPS products that include
next-generation M-Code technologies.
The business operates across a broad base of customers and
platforms and is well positioned in the highly attractive,
US-focused defense electronics and weapon systems end markets. The
GPS business has fielded over 1.5 million units and currently has a
presence on over 200 ground, 40 airborne and 40 weapons platforms
and is a key provider on the two highest volume weapons programmes
for the US Air-Force.
The GPS business brings both industry leading GPS receiver
products and a broad platform footprint, based on its long track
record of technological innovation that has led to increasing
product performance whilst simultaneously reducing size and
cost.
The business is based in Cedar Rapids, Iowa, with approximately
675 employees and post-acquisition, would be integrated into our
Electronic Systems division.
Strategic rationale
Driven by the secure geo-positioning needs of the modern
battlespace, we expect the business to see continuing strong
customer demand for its product portfolio as precision munitions
are expected to play an increasingly critical role in military
operations.
The GPS business is developing the next generation M-Code GPS
technologies for the US military. Utilisation of M-Code increases
security, integrity and availability with US Congress having
mandated M-Code for all military GPS user equipment after October
2020. The GPS business is well positioned to provide the M-Code
upgrade to its existing product base, which includes some of the
highest volume Air Force and Army programmes. In total over 700
platforms are anticipated to be transitioned to M-Code.
The GPS business will be highly complementary to our priority
growth area of precision guided munitions in our Electronics
Systems division. It has high growth potential as a result of its
technological strength and is well positioned to participate in the
next cycle of generational upgrades across its sizeable installed
base. As it complements both BAE Systems' defence electronics
capabilities and has pan domain systems presence there are
significant opportunities for our respective product lines in this
growth area.
Financial impact
The GPS business is expected to achieve revenues of
approximately $359m and adjusted EBITDA of approximately $127m in
2020 and has strong future growth potential with an expected
revenue CAGR in excess of 10% over the next four years, with
continued growth expected thereafter. EBITDA margins are expected
to be sustained.
The gross acquisition price of $1.925bn represents a transaction
multiple of 15x estimated 2020 EBITDA or 12x when adjusted for the
tax benefit(i) . The proposed acquisition would be expected to be
immediately earnings and cash flow accretive, and would be expected
to achieve a return on invested capital in excess of cost of
capital in the third full year post completion.
The proposed acquisition would be funded by new external
debt.
The proposed acquisition of the GPS business constitutes a Class
2 transaction for the purposes of the UK Financial Conduct
Authority's Listing Rules. During the full year ended 31 December
2018, the GPS business generated total revenue of $254 million and
EBITDA of $98 million. As at 30 September 2019, the GPS business
had gross assets of $106 million.
Proposed acquisition of Raytheon's Airborne Tactical Radios
business ("Radios business")
The Radios business and strategic rationale
The Radios business is a leading provider of airborne tactical
radio solutions. The business designs, manufactures and supplies a
broad range of mission-critical communication systems to the US
Department of Defense, allied governments and large defence
aircraft manufacturers. The business has a long history of
innovation which has resulted in development of valuable
intellectual property to support its secure communications, leading
to a significant installed base of radios across a number of allied
countries.
The Radios business is a strong strategic fit, adding
complementary positions in the airborne communications domain
including software-defined radio capabilities and a catalogue of
waveforms. The acquisition provides the business with a certified
indigenous encryption capability, an essential part of secure
communication.
These systems feature robust anti-jamming, multi-band,
multi-channel and encryption capabilities. It is differentiated by
its industry-leading and battle-proven performance in challenging
environments.
The combination of the Radios business's robust existing order
backlog and strong positioning for the continued modernisation of
secured communication technologies underpins its long-term growth
potential.
The business is based in Fort Wayne, Indiana, and Largo,
Florida, with c.100 employees and post-acquisition, would be
integrated into our Electronic Systems division.
Financial impact
The Radios business is expected to generate revenue of
approximately $125m in 2019 and has strong growth potential
underpinned by US Department of Defense and NATO mandates for
cryptographic and anti-jamming modernisation of software defined
radios. The proposed acquisition is expected to be immediately
earnings and cash flow accretive, and achieve a return on invested
capital in excess of cost of capital in the first full year post
completion.
The proposed acquisition would be funded by existing cash on the
balance sheet.
Analyst and investor presentation
A presentation, for analysts and investors, will be available
via webex at 9.00 am GMT today (20 January 2020). Details can be
found on investors.baesystems.com, together with presentation
slides and this announcement. A recording of the webex will be
available for replay later in the day.
Conference call dial in details:
UK Domestic +44(0)207 192 8000
International 001 6315 107495
Access code: 2944704
Webcast link: https://edge.media-server.com/mmc/p/5eyrhkuv
For further information please contact:
Investors Media Relations
Martin Cooper, Kristina Anderson,
Investor Relations Director Director, Media Relations
Telephone: +44 (0)1252 383455 Telephone: +44 (0) 7540 628673
Email: investors@baesystems.com Email: Kristina.anderson@baesystems.com
Cautionary statement:
All statements other than statements of historical fact included
in this document, including, without limitation, those regarding
the financial condition, results, operations and businesses of BAE
Systems and its strategy, plans and objectives and the markets and
economies in which it operates, are forward-looking statements.
Such forward-looking statements which reflect management's
assumptions made on the basis of information available to it at
this time, involve known and unknown risks, uncertainties and other
important factors which could cause the actual results, performance
or achievements of BAE Systems or the markets and economies in
which BAE Systems operates to be materially different from future
results, performance or achievements expressed or implied by such
forward-looking statements. BAE Systems plc and its directors
accept no liability to third parties in respect of this report save
as would arise under English law. Accordingly, any liability to a
person who has demonstrated reliance on any untrue or misleading
statement or omission shall be determined in accordance with
Schedule 10A of the Financial Services and Markets Act 2000. It
should be noted that Schedule 10A contains limits on the liability
of the directors of BAE Systems plc so that their liability is
solely to BAE Systems plc.
Notes:
[i] For US tax purposes the transaction constitutes an asset
sale for vendor and purchaser - the associated relief is
anticipated to generate a cash tax benefit with a present value of
c.$365m
[ii] For US tax purposes the transaction constitutes an asset
sale for vendor and purchaser - the associated relief is
anticipated to generate a cash tax benefit with a present value of
c.$50m
Issued by:
Martin Cooper - Investor Relations Director
BAE Systems plc
London
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END
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