Should England ever decide to reassert its claim of sovereignty over "the Colonies," we may be in a bit of a sticky wicket. Even worse, we may be forced, at gunpoint, to say things like "sticky wicket" on a regular basis.
You see, it's kind of hard to fight off invaders when you've just finished selling them all your guns. And yesterday, we signed away another big cartload of guns, destined for our cousins on the other side of the pond. Specifically, America's United Defense Industries (NYSE:UDI) agreed to sell itself to Britain's BAE Systems for about $4 billion cash, plus the assumption of UDI's $218 million in debt. At a sales price of $75 per share, the deal values UDI at a 29% premium to its closing price last week.
I've no doubt that UDI is getting a fair price. BAE will be paying nearly two times sales for UDI, while pretty much every other defense powerhouse around, starting with Boeing (NYSE:BA) and running up through Raytheon (NYSE:RTN), sells for under one times sales. (Just to be safe, though, UDI had two bankers -- JP Morgan (NYSE:JPM) and Lehman Brothers (NYSE:LEH) -- sign off on the "fairness" of the deal. They, too, agreed it was a good price, letting all the lawyers breathe easier.)
However, I do have to wonder what BAE's thinking here. After all, although it's true that UDI makes many other things that go "boom," the company is best known for manufacturing the M2 and M3 versions of the Bradley Fighting Vehicle. Ever since being introduced in the early 1980s, the Bradley has been criticized as a rolling death trap -- a vehicle with a high profile, vulnerable to everything from tank rounds to RPGs to (we now know) Iraqi IEDs. I mean -- the thing's made of aluminum, for goodness sakes! What's more, in recent years, the U.S. Army has shown a definite interest in moving away from tracked vehicles like the Bradley, and toward wheeled armor like General Dynamics' (NYSE:GD) Strykers. So, combine a low-survivability tracked vehicle, a trend toward wheeled vehicles, and another trend toward defense cuts -- I suspect by now you see where I'm going with this.
To wit, it looks to this Fool like BAE is overpaying for a company whose signature product is already obsolete. Which I think goes a long way toward proving my original point: If there's no rational business reason to pay twice the going rate for UDI, the clear implication is that the British are indeed coming to reclaim their lost American real estate. Somebody get up in the bell tower and start hanging lanterns, will ya?
Conspiracy theorists and The Military Channel fans alike are welcome to discuss this further on the Fool's Aerospace and Defense discussion board.
Fool contributor Rich Smith has no ownership interest in any of the companies mentioned in this article (but he thinks their products are way cool).
