BAE unit sale advances, GE remains in race-sources

* GE, Eaton, Honeywell in second round for BAE aero unit

* Business could go for over 10 times $190 mln EBITDA

* Several PE firms also bidding, smaller strategics out

* BAE to whittle down group, more rounds expected in Nov

By Soyoung Kim and Michael Erman

NEW YORK, Nov 8 (BestGrowthStock) – An auction for BAE Systems
Plc’s (BAES.L: ) aerospace unit has advanced to the second round
and attracted bids from heavyweights including General Electric
Co (GE.N: ), Eaton Corp (ETN.N: ) and Honeywell International Inc
(HON.N: ), people familiar with the matter said.

The companies are among a handful of suitors that put in a
second round of bids for BAE’s platform solutions business by
the deadline of Oct. 29, after the initial round in
mid-September and management presentations in following weeks,
the people said.

The unit could go for more than 10 times its earnings
before interest, taxes, depreciation and amortization (EBITDA)
of about $190 million, putting the price tag at the higher end
of the $1.6 billion to $2 billion range earlier expected by
bankers and analysts, the people said.

BAE, Europe’s largest defense contractor, has also received
bids from several private equity firms, the sources said,
underscoring robust buyer interest at a time when air traffic
is picking up after a deep slump lasting years.

Smaller strategic bidders — mostly aerospace parts
suppliers — have shown interested in parts of the business;
but BAE intends to sell the unit in its entirety given interest
from large conglomerates such as GE and Eaton, the people
said.

BAE, which has hired JPMorgan Chase & Co (JPM.N: ) to sell
the platform solutions business, is expected to run additional
rounds to whittle down the group of bidders, the people said.

The sources were not authorized to speak with the media and
declined to be named. Representatives for GE, Eaton, Honeywell
and JPMorgan declined to comment. BAE Systems was not
immediately available for comment.

GE HOLDS KEY

GE, the largest U.S. conglomerate, is actively looking for
deals in the industrials and healthcare areas in an effort to
deploy billions in cash after cost-cutting during the
recession, and to boost its industrials revenues over finance
operations.

GE is a major customer of BAE’s aircraft engine controls
and is mainly attracted by the division of BAE’s platform
solutions group that makes aircraft-engine electronic controls
for GE and for CFM International, the sources said. CFM is a
joint venture between GE and France’s Safran (SAF.PA: ).

The big question in the BAE unit auction is whether GE will
ultimately decide to do vertical integration by adding the
maker of aircraft engine controls to its existing engine-making
operations, the sources said.

GE has indirect influence on the sale process because any
buyer of the BAE unit would need to maintain a close commercial
relationship with GE, the sources said.

The involvement of GE has also made it difficult for its
key competitors in the aircraft engine market, such as United
Technologies Corp (UTX.N: ) and Goodrich Corp (GR.N: ), to pursue
the BAE assets, the sources said.

United Technologies competes with GE in the aircraft engine
market through its Pratt & Whitney unit. Goodrich makes engine
controls through a joint venture with Britain’s Rolls-Royce Plc
(RR.L: ).

BAE’s digital engine controls, which govern fuel flow and
control variable engine geometries, are used in a wide range of
aircraft, including the Airbus A320 and the Boeing 737 — the
two hottest-selling passenger planes in history.

BAE’s platform solutions group also includes a commercial
avionics business, which it bought from Boeing Co (BA.N: ) in
2004, that makes aircraft components that help with navigation
and surveillance, as well as a division that makes hybrid
propulsion systems for buses and trucks. It employs 4,200
people at sites worldwide.

Bankers see a healthy pipeline of deals in the commercial
aerospace market, as buyers gain confidence at the signs of an
industry upturn following years of sluggish travel demand.

Diversified industrial conglomerates such as GE and
Honeywell are also stepping up dealmaking to boost growth in a
weak economy.

The industrial giants are eyeing deals mostly in the $1
billion to $3 billion range to expand their core strength or
grow adjacent businesses, rather than venturing into new areas,
bankers said.
(Reporting by Soyoung Kim and Michael Erman, editing by Gerald
E. McCormick)

BAE unit sale advances, GE remains in race-sources