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Atlas bidders narrowing
By James. H. Smith
October 10, 2005
The sale of Atlas Elektronik, the German subsidiary of BAE Systems, has been
narrowed to three bidders: French defense company Thales; a joint bid from
German steel group ThyssenKrupp and aerospace and defense company EADS; and,
heavily acquisitive US defense company L-3 Communications.
Under terms of a letter of intent signed between ThyssenKrupp and EADS, the
former would hold a 60 per cent stake in the acquired company while the
European aerospace company would take the remaining 40 per cent.
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The German bid may be the front runner, bearing in mind recent moves by the
Schröder government to curtail non-German investment in the country's
defense sector.
BAE hopes to pick a winner this month for Atlas Elektronik, a company that
manufacturers security equitment for submarines and surface ships. The
acquired company will give the buyer a key position in the consolidating
European maritime security sector.
Price tag for the acquisition is expected to be at least EUR300 million.
L-3's inclusion on the shortlist of bidders is a surprise as the company's
foray into the European defense market is only a recent move. However, L-3
has opened an office in London is actively seeking European acquisitions.
In early September, the Schröder regime passed legislation that effectively
prohibits foreign investors from acquiring, not only companies that
manufacture weapons, but companies that supply to the German military
sector.
That change in policy may be bad news for L-3, which has been eyeing
possible acquisitions in the European defense sector. But the loss would not
have any effect on the company's existing strong position in the sector.
L-3 has fared well; the company's position as major contractor to the US
military L-3 is not expected to be hurt by proposed cuts in the US defense
budget.
L-3 provides intelligence, surveillance and reconnaissance systems and
products, secure communications systems, aircraft modernization, training
and government services, and is a merchant supplier of a broad array of high
technology products.
-3's customers include the US Department of Defense, Department of Homeland
Security, selected U.S. government intelligence agencies and aerospace prime
contractors.
The Atlas Elektronik deal may be the mirror image of another transaction
taking place in Germany.
After intensive negotiations with minority owners, DaimlerChrysler nows
holds a 100 per cent interest in MTU Friedrichshafen, a German company that
manufacturers components for military hardware.
The minority stake was held by two German families who had previously
entered exclusive negotiations to sell their combined stakes to US private
equity firm Carlyle Group;
DaimlerChrysler vetoed that deal.
The German auto manufacturer had threatened to close down MTU rather than
allow sale of the stake held by the families to Carlyle.
In July, before the change in regulations, Schroeder opposed the possible
sale of MTU to a private equity firm on the basis that the company qualifies
as a strategic defense company to which special takeover rules apply.
At that time, Schroeder noted that the government had no direct influence on
a potential MTU sale, adding that the government is entitled to have a say
in the decision due to MTU's status as strategic defense company.
MTU's labor representatives had urged Schroeder to intervene following fears
that a private equity investor might cut jobs at the diesel engine maker.
Now, armed with a 100 per cent interest in MTU Friedrichshafen and no issues
with minority shareholders, plans to sell MTU by the end of 2005 as the
automaker sells off interests in businesses not related to motor vehicles --
excluding its interest in European aerospace group EADS.
About a dozen buyers have been suggested, including Carlyle as well as
Kohlberg Kravis Roberts (KKR), another US private equity firm, and Swedish
private equity fund EQT Partners. Most of the those would-be suitors are
believed to be based outside Germany.
Also suggested as a possible buyer is German truckmaker MAN. The German
company made an unsuccessful bid for MTU several months ago.
The MTU Friedrichshafen sale would represent the second recent sale by
DaimlerChrysler of an MTU unit.
In 2003, the carmaker sold aircraft engine company MTU Aero to KKR in a
EUR200 million cash deal.
Whether there are significant numbers of potential takeover deals in the
German military market that would make the strengthened German government
position an obstacle for acquisitive non-German companies is questionable.
Although L-3 would prefer to gain a foothold in the European market via the
Atlas Elektronik deal, L-3 has a strong balance sheet, canny management and
a good business plan.
There are other deals in the European market and L-3 is well positioned to
get a piece of the action.
Disclaimer
James Smith is an independent columnist for this web site. James Smith may
hold long or short positions in any of the stocks mentioned in this article
and those positions can change at any moment.
InvestorIdeas.com Disclaimer:
www.InvestorIdeas.com/About/Disclaimer.asp, InvestorIdeas is not
affiliated or compensated by the companies mentioned in this article. James
Smith is a freelance writer. Nothing in the articles should be construed as
an offer or solicitation or recommendation to buy or sell any specific
products or securities. Past performance does not guarantee future results.
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