moughoun
06-04-2004, 11:16 AM
Thursday June 3, 4:08 pm ET
By Siobhan Kennedy and Santosh Menon
LONDON, June 3 (*******) - BAE Systems, Europe's biggest military contractor, on Thursday agreed to buy UK tank maker Alvis for 355 million pounds ($651 million), in a last-minute move that looked set to crush a rival bid from U.S. competitor General Dynamics.
BAE said the board of Alvis Plc had recommended its 320 pence-a-share offer, withdrawing its earlier recommendation for a 280p bid by larger U.S. military contractor General Dynamics Corp.
A General Dynamics spokesman said the company was reviewing the situation. He declined further comment on BAE's bid.
The move to snatch Alvis signals BAE's ambition to secure a key role in a new three-billion-pound U.K. armoured vehicle contract called Future Rapid Effects System (FRES).
It also comes at a time when European industry executives and politicians have expressed fears of U.S. domination, fueled by rising U.S. defense spending, which at over $200 billion a year dwarfs what Europe spends collectively.
Crucially, BAE said it had managed to get irrevocable undertakings from hedge funds holding 16.2 percent of Alvis shares to back a bid.
The military contractor already owns 28.7 percent of Alvis so the hedge fund support means the company now has 45 percent of votes backing its bid, just five percent shy of the 50.1 percent required by UK law for a full takeover to proceed.
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HUGE BLOW
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The eleventh hour bid will come as a huge blow to General Dynamics, which last month won permission from the European Commission to buy Alvis, its only UK rival in the tank business.
All eyes will now be on the U.S. firm to see if it will respond with a higher counteroffer.
One source close to the process said a sweetened offer was still possible. "The door isn't tightly shut, there's a small crack, but it's going to be difficult," the source said.
General Dynamics -- which makes the Abrams main battlefield tank used by the U.S. military -- had postponed until June 7 a deadline to allow shareholders to back its deal after just 17.35 percent of investors had backed the offer.
"There was always a possibility that BAE might come in with a counter offer. General Dynamics was not getting enough shareholder support from Alvis," said Nick Fothergill, analyst with Banc of America Securities (News - Websites) .
The takeover by General Dynamics would have been the largest in a string of deals in Europe involving military vehicle makers in Austria, Spain and Switzerland.
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OPTIMISTIC
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A spokesman for BAE said the firm was optimistic that its bid would be successful.
"It's a straight forward, bolt on acquisition," he said.
"We're very strong in supporting the Royal Air Force and Royal Navy in the UK. This will enable us to offer the same levels of support for UK land systems," he added.
But analysts said the FRES contract was central to BAE's offer since a successful bid by General Dynamics would make the U.S. company the lead armored vehicle producer in the U.K.
"BAE recognises that it and Alvis together would have a big impact on FRES," Fothergill said.
Alvis started as a car manufacturer in 1919 and it now has operations in the UK, Scandinavia and South Africa. Apart from tanks, Alvis makes armoured infantry fighting vehicles, and armoured personnel carriers.
The news came after the market closed in London. BAE shares closed up 2.4 percent at 213 pence, while Alvis shares ended 0.2 percent down at 274-1/2p. General Dynamics shares were off 0.5 percent at $96.49 in afternoon trade on the New York Stock Exchange.
By Siobhan Kennedy and Santosh Menon
LONDON, June 3 (*******) - BAE Systems, Europe's biggest military contractor, on Thursday agreed to buy UK tank maker Alvis for 355 million pounds ($651 million), in a last-minute move that looked set to crush a rival bid from U.S. competitor General Dynamics.
BAE said the board of Alvis Plc had recommended its 320 pence-a-share offer, withdrawing its earlier recommendation for a 280p bid by larger U.S. military contractor General Dynamics Corp.
A General Dynamics spokesman said the company was reviewing the situation. He declined further comment on BAE's bid.
The move to snatch Alvis signals BAE's ambition to secure a key role in a new three-billion-pound U.K. armoured vehicle contract called Future Rapid Effects System (FRES).
It also comes at a time when European industry executives and politicians have expressed fears of U.S. domination, fueled by rising U.S. defense spending, which at over $200 billion a year dwarfs what Europe spends collectively.
Crucially, BAE said it had managed to get irrevocable undertakings from hedge funds holding 16.2 percent of Alvis shares to back a bid.
The military contractor already owns 28.7 percent of Alvis so the hedge fund support means the company now has 45 percent of votes backing its bid, just five percent shy of the 50.1 percent required by UK law for a full takeover to proceed.
__________________________
HUGE BLOW
__________________________
The eleventh hour bid will come as a huge blow to General Dynamics, which last month won permission from the European Commission to buy Alvis, its only UK rival in the tank business.
All eyes will now be on the U.S. firm to see if it will respond with a higher counteroffer.
One source close to the process said a sweetened offer was still possible. "The door isn't tightly shut, there's a small crack, but it's going to be difficult," the source said.
General Dynamics -- which makes the Abrams main battlefield tank used by the U.S. military -- had postponed until June 7 a deadline to allow shareholders to back its deal after just 17.35 percent of investors had backed the offer.
"There was always a possibility that BAE might come in with a counter offer. General Dynamics was not getting enough shareholder support from Alvis," said Nick Fothergill, analyst with Banc of America Securities (News - Websites) .
The takeover by General Dynamics would have been the largest in a string of deals in Europe involving military vehicle makers in Austria, Spain and Switzerland.
__________________________
OPTIMISTIC
__________________________
A spokesman for BAE said the firm was optimistic that its bid would be successful.
"It's a straight forward, bolt on acquisition," he said.
"We're very strong in supporting the Royal Air Force and Royal Navy in the UK. This will enable us to offer the same levels of support for UK land systems," he added.
But analysts said the FRES contract was central to BAE's offer since a successful bid by General Dynamics would make the U.S. company the lead armored vehicle producer in the U.K.
"BAE recognises that it and Alvis together would have a big impact on FRES," Fothergill said.
Alvis started as a car manufacturer in 1919 and it now has operations in the UK, Scandinavia and South Africa. Apart from tanks, Alvis makes armoured infantry fighting vehicles, and armoured personnel carriers.
The news came after the market closed in London. BAE shares closed up 2.4 percent at 213 pence, while Alvis shares ended 0.2 percent down at 274-1/2p. General Dynamics shares were off 0.5 percent at $96.49 in afternoon trade on the New York Stock Exchange.