BAE homing in on MBDA sale

By Adam Durchslag
16 April 2006

BAE Systems, Britain’s largest defence company, is moving nearer to a sale of its E1.5bn ($1.8bn, £1bn) stake in the world’s largest missile company, MBDA.

After it closes the sale of its stake in Airbus in about three months, “the next stage is for BAE to sell its MBDA stake to EADS,” an insider told The Business. Industry sources also confirm that BAE will eventually sell its 37.5% stake in MBDA, which makes Exocet missiles.

A spokesperson for BAE said the company had “no immediate plans” to sell the MBDA stake, but observers think differently.

They point out that BAE had long maintained it had no immediate plans to sell its 20% stake in Airbus. BAE’s chief executive Mike Turner stated and re-stated that BAE saw it as just a financial investment.

As recently as 3 April BAE told the media it had no immediate plans to sell its 20% Airbus stake to EADS. By the following Friday it had announced plans to sell the Airbus stake.

EADS does not need to carry out financial due diligence on Airbus, since it already owns 80% of the company. BAE sold out because it believes the airline industry’s economic cycle is at its peak.

EADS, which also has a 37.5% stake in MBDA, has been touted as the favourite to buy BAE out of MBDA. Italy’s Finmeccanica owns 25% of the missile company, but it is understood that no company has yet approached the Italians to buy their stake.

With the proceeds from the Airbus sale – which could reach as much as E4.6bn – and E1.5bn from a MBDA sale, BAE will be in a stronger position to buy US assets. BAE’s management has stated it wants to strengthen BAE as a transatlantic primary defence contractor serving both the Pentagon and the UK’s Ministry of Defence.

The company is known to be on the hunt for American companies with large US federal IT contracts.

Rockwell Collins and Harris Corporation are two such companies. Their workforces also have top secret US security clearance which would help BAE win even more US work.

BAE has not yet said what it will do with any proceeds. It could use some of the cash to plug its £4.1bn pension deficit.

BAE does not however have to rush in to either an Airbus or MBDA sale, because it is part of the consortium close to supplying Saudi Arabia with $70bn worth of Eurofighter jets.

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