28th Jan 2005 07:01
BAE SYSTEMS PLC27 January 2005 27 January 2005 BAE Systems and Finmeccanica sign EuroSystems transaction agreement Further to the announcement on 20 October 2004, BAE Systems plc ("BAE Systems")announces that it has signed a definitive transaction agreement withFinmeccanica SpA ("Finmeccanica") in relation to the EuroSystems transaction. Under the EuroSystems transaction: • BAE Systems and Finmeccanica will merge BAE Systems Avionics Limited and Galileo Avionica SpA to form a new Avionics business valued at approximately £1.08 billion. BAE Systems will own 25 per cent. of this business and will also receive net cash consideration upon completion of £379 million. Finmeccanica will own 75 per cent. of the business. In accordance with the option arrangements described more fully below, BAE Systems will be entitled to receive a further £269 million in cash for its remaining 25 per cent. interest; • AMS, currently a 50/50 joint venture of BAE Systems with Finmeccanica, will be dissolved. BAE Systems will acquire AMS's UK operations, which are valued at approximately £360 million, and Finmeccanica will acquire all of the Italian operations of AMS, which are valued at approximately £260 million. BAE Systems will pay Finmeccanica an equalising amount of £50.5 million in cash. In addition, Finmeccanica will acquire the UK Air Traffic Management business of AMS for £10 million (£6.5 million in cash and £3.5 million in assumed debt); and • Selenia Communications Limited, a wholly owned subsidiary of Finmeccanica, will acquire BAE Systems' UK Communications business for £25.4 million in cash. The total effective net cash consideration, including the UK Air TrafficManagement assumed debt, to be received by BAE Systems is £633 million, of which£364 million will be received upon completion of these three constituenttransactions and a further £269 million will be received under optionarrangements. Completion is subject to obtaining all applicable regulatory andgovernmental consents. The agreement enables BAE Systems to create a significant Systems Integrationand C4ISR business by integrating the capabilities of AMS's UK operations andBAE Systems' C4ISR Networked Systems and Solutions business. The transactionalso achieves BAE Systems' and Finmeccanica's mutual goals of securing controland clear management responsibility for significant businesses of the Europeandefence industry. Finmeccanica will have majority ownership of BAE Systems' UKAvionics business and Galileo Avionica in Italy; and will have full ownership ofBAE Systems' UK Communications business and Finmeccanica's existing strategiccommunications business. Avionics The new Avionics business will comprise BAE Systems Avionics Limited, BAE Systems' UK avionics businesses operating in the fields of electro-optics, airborne radar and electronic warfare ("BAE Systems UK Avionics"), together with Galileo Avionica SpA, Finmeccanica's Avionics business. As previously indicated, the US and Australian Avionics businesses as well as the UK business of the Platform Solutions Sector of BAE Systems North America, based at Rochester and Plymouth are not included in the EuroSystems transaction. The EuroSystems transaction agreement incorporates certain option arrangements whereby Finmeccanica may require BAE Systems to sell its 25 per cent. interest in the new Avionics business to Finmeccanica at any time following completion and BAE Systems may require Finmeccanica to purchase its 25 per cent. interest after 25 months following completion. The consideration for BAE Systems' 25 per cent. interest payable on exercise of either option will be £269 million in cash. The net cash payable to BAE Systems and the option exercise price are subject to reduction, depending, in relation to BAE Systems UK Avionics, upon the profit achieved for the year ended 31 December 2004, the achievement of targets for certain contracts within a period of two years from completion and in respect of any amounts payable by BAE Systems UK Avionics to the BAE Systems pension schemes as a result of the transaction. BAE Systems intends to account for its interest in the new Avionics business as an investment. During the year to 31 December 2003, BAE Systems UK Avionics generated £677.9 million of turnover and £17.4 million of profit before interest, tax, amortisation and exceptional items. At 31 December 2003, BAE Systems UK Avionics had net assets which are the subject of this transaction of £99.4 million. During the year to 31 December 2003, Galileo Avionica generated Euro 517.5 million of turnover and Euro 49.8 million of profit before interest, tax, amortisation and exceptional items. At 31 December 2003, Galileo Avionica had net assets which are the subject of this transaction of Euro 401.2 million. AMS The AMS joint venture will be dissolved, with BAE Systems and Finmeccanica acquiring the UK and Italian operations of AMS respectively. BAE Systems will merge the UK operations of AMS and BAE Systems' C4ISR Networked Systems and Solutions business to form a wholly owned systems integration business. During the year to 31 December 2003, AMS generated £806.2 million of turnover (of which its UK operations accounted for £481.6 million and its Italian operations accounted for £324.6 million) and £63.8 million profit before interest, tax, amortisation and exceptional items (of which its UK operations accounted for £51.3 million and its Italian operations accounted for £12.5 million). At 31 December 2003, AMS had net assets which are the subject of this transaction of £756.7 million (of which its UK operations accounted for £444.2 million and its Italian operations accounted for £312.5 million). Communications During the year to 31 December 2003, the BAE Systems' UK Communications business, which was disclosed in the BAE Systems 2003 Report and Accounts as part of the Avionics division, generated £46.7 million of turnover and a loss before interest, tax, amortisation and exceptional items of £5.2 million. At 31 December 2003, the BAE Systems' UK Communications business, had net liabilities which are the subject of this transaction of £1.1 million. The proceeds from the transaction will be used to reduce BAE Systems debt. Thetransaction is expected to be slightly dilutive to earnings per share in 2005. Mike Turner, Chief Executive of BAE Systems, said: "BAE Systems is delighted tohave reached agreement with Finmeccanica on such a major transaction. Thistransaction will generate substantial cash proceeds for BAE Systems and willresult in management control and improved business opportunities in thestrategically important area of Network Enabled Capability." Dresdner Kleinwort Wasserstein Limited is acting as lead financial adviser andbroker to BAE Systems on the EuroSystems transaction. Rothschild is acting asco-financial adviser. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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