EADS unit to buy Canada’s Vector Aerospace

By Astrid Wendlandt and Cyril Altmeyer

PARIS (Reuters) – EADS (EAD.PA: Quote, Profile, Research) has ended a three-year acquisition drought in North America with a C$625 million ($640 million) cash bid for Canadian overhaul and repair firm Vector Aerospace (RNO.TO: Quote, Profile, Research).

Europe’s largest aerospace company has had its eye on transatlantic expansion for some time to wean itself off the euro, whose strength has been hurting its airplane subsidiary Airbus, and to expand further into defense and aerospace services.

Chief Executive Louis Gallois hailed the purchase as a significant step in the 11-year history of EADS, which was founded through a merger of French, German and Spanish aerospace interests.

“This is the most significant acquisition ever made by EADS since it was created,” Gallois told Reuters shortly after the deal was announced on Monday.

“This is very complementary geographically,” he added.

EADS subsidiary Eurocopter, the world’s largest civil helicopter maker, will make an agreed bid worth C$13 a share, valuing the Canadian company at C$625 million, and has won commitments from shareholders owning 60 percent of the shares, EADS said.

The deal offers Vector Aerospace shareholders a 14.5 percent premium over Friday’s closing price of C$11.35.

“Most of the transactions have been happening at multiples similar to where this transaction is priced. I think it is a fair price,” said Chris Murray, an analyst at PI Financial in Toronto.

He added that he did not expect any competing bids to emerge for the Toronto-based company.

Vector shares leapt 13.4 percent, or C$1.53, to a high of C$12.88 on the Toronto Stock Exchange on Monday morning.

EADS shares were down 0.64 percent at 20.075 euros in Paris at 0940 GMT.

Vector Aerospace, which employs 2,500 people, provides maintenance and repair services out of Canada and the United Kingdom and is present in the United States and South Africa.

Pressured by sharp cuts in European defense budgets and backed by almost 12 billion euros in cash, EADS has been hunting for some time for U.S. deals worth a total of 1 billion to 2 billion euros.

Analysts have criticized the company for having too much cash on its balance sheet, providing meager returns versus the higher costs of financing equity and debt.

SERVICES BOOST

Unlike Italian rival Finmeccanica (SIFI.MI: Quote, Profile, Research), which bought U.S. defense contractor DRS Technologies for $5.5 billion in 2008, EADS had been quiet in mergers generally in the decade since it was founded as a European counterweight to U.S. aerospace and defense giants.

Until now, its complicated ownership, spanning several European nations, and concerns about its ownership of U.S. security assets have slowed up the search for targets.

In 2008, EADS bought PlantCML, a U.S. maker of civil emergency response systems, for $350 million.

But pressure from one of its shareholders forced the company to call off a deal in 2008 that executives at the time said was worth about $1 billion.

People familiar with the matter have identified the abandoned target as U.S. military telecoms equipment firm Comtech Telecommunications Corp.

EADS said the purchase of Vector Aerospace would push it toward its goal of lifting services, as a proportion of EADS revenues, to 25 percent in 2020 from 12 percent in 2009.

The purchase could also catapult Eurocopter above the Astrium space division as the third-largest EADS unit by revenues, behind planemaker Airbus, which remains by far the largest source of sales, and defense unit Cassidian.

In 2010, Vector generated revenues equivalent to 400 million euros, which would have lifted Eurocopter to 5.2 billion euros compared with Astrium’s 5 billion.

EADS said the purchase would “support” its 2011 target of stable operating profit of around 1.3 billion euros.

It announced the takeover talks on Friday.

Vector Aerospace reported 2010 revenue of C$545 million, 4 percent lower than in 2009, and pre-tax earnings of C$45 million, up 11 percent. It made a net profit of C$33 million.

The company has minimal debt of $3.1 million.

Vector has said it is beginning to see signs of improvement in the commercial engine market and that it is making productivity improvements, expanding its commercial engines and military businesses.

(Additional reporting and writing by Tim Hepher, Blaise Robinson and Nicole Mordant in Vancouver; Editing by Hans Peters and Rob Wilson)

($1=C$0.975 Canadian)

($1=0.71 euros)

EADS unit to buy Canada’s Vector Aerospace