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By Doug Cameron
BAE Systems PLC is doubling down on the U.S. defense market with its biggest acquisition in more than a decade, agreeing to buy a business that tracks everything from jet fighters to tanks from United Technologies Corp. for $1.93 billion.
The purchase of Collins Aerospace's Military Global Positioning System business, owned by United Technologies, comes as the Pentagon tightens cybersecurity standards because of perceived rising threats from China and Russia.
The British defense-and-security company also said Monday it would pay $275 million for Raytheon Co.'s Airborne Tactical Radios business, which makes military communications equipment.
The businesses are being sold by United Technologies and Raytheon as the companies are seeking regulatory approval for their own planned merger. That deal, announced last year, will create the world's second-largest military supplier by sales. Analysts expect further disposals to be required before the deal closes.
BAE Chief Executive Charles Woodburn said the twin buys were a "once in a lifetime opportunity" that would immediately boost earnings.
"It's rare that two businesses of this quality, with such strong growth prospects and close fit to our portfolio, become available," Mr. Woodburn said in a statement.
GPS systems are installed on more than 1.5 million pieces of military equipment world-wide. The Pentagon has mandated that both new and existing GPS-enabled equipment has to be upgraded to meet tougher standards that make it more resilient to cyberattacks and jamming.
Those new cybersecurity standards, known as "M-code," are a key part of the overhaul of GPS, which also underpins consumer devices like mobile phones. Collins is one of three companies cleared to carry out much of the work, BAE said.
BAE has expanded in the U.S. over the past two decades by acquiring makers of armored vehicles and electronic warfare systems. The latest deal is the largest since it paid almost $2 billion for military vehicle specialist Armor Holdings Inc. in 2007.
While the Pentagon has been looking to restrict overseas investment in the U.S. military-industrial base -- to protect intellectual property and local suppliers -- BAE's wholly-owned U.S. arm has trusted-supplier status. It is already one of the Defense Department's largest providers of equipment and systems.
The asset sales will dilute annual revenues of the proposed new Raytheon Technologies, though the combined company is still on track to leapfrog Northrop Grumman Corp. to become the world's third-largest defense company after Lockheed Martin Corp.
The planned merger still requires regulatory approval. Analysts have flagged potential disposals of assets that generate more than $10 billion in annual sales, including United Technologies' aircraft interiors business. Some of those divestments, analysts say, would address regulatory requirements, with others refining the product lineup.
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(END) Dow Jones Newswires
January 20, 2020 12:53 ET (17:53 GMT)
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