UPDATE 3-BAE cancels Platform Solutions sale, to keep unit

* BAE Systems says no longer pursuing sale of unit

* GE, Eaton, Warburg Pincus had bid for unit-sources

* BAE shares turn lower, down as much as 2 percent

(Adds analyst’s comment, more details, updates shares)

By Soyoung Kim and Rhys Jones

NEW YORK/LONDON, Jan 11 (BestGrowthStock) – BAE Systems (BAES.L: ) has
cancelled plans to sell part of its U.S. commercial aerospace
unit, deciding instead to keep the unit after reviewing the
business’ performance.

The British defence contractor, which hired JPMorgan Chase &
Co (JPM.N: ) and Wells Fargo (WFC.N: ) to sell the business last
September, said on Tuesday no sale had been agreed despite
“considerable expressions of interest” and that it would no
longer pursue the sale of the business.

Bankers and analysts said the unit, which makes aerospace
parts including aircraft engine controls, could fetch $1.5
billion to $2 billion for BAE. [ID:nN11121174] [ID:nLDE68C09D]

BAE shares in London fell as much as 2 percent after the
company confirmed the sale was off. The stock recovered some
ground and was down 0.4 percent at 339.2 pence by 1450 GMT,
valuing the company at around 11.6 billion pounds.

“We’ve always said it was a strong business and we did say
there was no guarantee we’d sell it,” a BAE spokeswoman in
London told Reuters. “We have done a strategic review of the
business and decided it will be in our best interests to hold on
to it.”

BAE’s Platform Solutions unit, which employs 4,200 people
worldwide, makes digital engine controls, which govern fuel flow
and control aircraft engine technology and are used in a wide
range of aircraft, including the Airbus A320 and the Boeing 737
— the two biggest-selling passenger planes in history.

The BAE unit also includes a commercial avionics business,
bought from Boeing Co (BA.N: ) in 2004, which makes aircraft
components that help with navigation and surveillance, as well
as a division that makes hybrid propulsion systems for buses and
trucks.

“It’s hard to know if earnings at the business have improved
because BAE don’t break it out but the recovery in this area has
been significant so BAE must be confident on the outlook for
2011,” said Credit Agricole analyst Thomas Mesmin.

“They have no need for cash and can finance any acquisitions
they want to do themselves.”

BAE Systems received three final bids, including one from
General Electric Co (GE.N: ), but determined that better earnings
at the division made a sale unnecessary, a source close to the
company told Reuters earlier on Tuesday.

People familiar with the matter told Reuters previously that
GE, industrial company Eaton Corp (ETN.N: ) and private equity
firm Warburg Pincus [WP.UL] submitted final bids for the BAE
unit.

Representatives for GE, Eaton and Warburg were not
immediately available for comment.

BAE sought at least 9 to 9.5 times the unit’s earnings
before interest, tax, depreciation and amortization (EBITDA) of
slightly less than $190 million — or $1.7 billion to $1.8
billion — but bidders wanted to pay below the range, people
familiar with the matter said previously.

The BAE unit is among several aerospace assets that have
been pulled from auction processes over the past year partly
because buyers and sellers failed to narrow differences over the
prices.

Private equity firm the Carlyle Group [CYL.UL] cancelled the
auction for aviation company Arinc last year after no buyer was
willing to meet Carlyle’s asking price of between $1.3 billion
to $1.5 billion, people familiar with the matter said. Goldman
Sachs (GS.N: ) was adviser on the sale.

GE is a major customer of BAE’s aircraft engine controls and
the involvement of GE in the auction process made it difficult
for its key competitors in the aircraft engine market to pursue
the BAE assets, people familiar with the matter told Reuters
previously.
(Editing by Maureen Bavdek, Robert MacMillan, Dave Zimmerman
and Sophie Walker)