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Case Studies

Peter A. Sokoloff & Co. regularly analyzes transactions which occur within the industries covered. An archive of these case studies is kept online as a courtesy to our colleagues. To receive by e-mail new case studies as they are prepared, please e-mail [email protected] with your contact information.

Archives > Transaction Case Study 24

BAE Systems, Inc. to acquire Armor Holdings, Inc.

Dear Colleague,

On May 7, 2007 Armor Holdings, Inc. (NYSE: AH), a diversified manufacturer of branded products for the military, law enforcement, and personnel safety markets, announced that it has entered into a definitive merger agreement to be acquired by BAE Systems Inc., an American subsidiary of the British defense conglomerate BAE Systems PLC. BAE has agreed to acquire all of the outstanding stock of Armor Holdings, Inc. for $4.1 billion, or a price per common share of $88.00 through a one-step merger.  This is a 7 percent premium over the closing price of company shares Friday.

Following conversion of its 2.00% Senior Subordinated Convertible Notes, AH will have 41.638 million fully diluted shares.  This means that BAE will be paying $3.66 billion for shares and assuming or replacing about $440 million of debt, for a total Enterprise Value of about $4.1 billion.

Jacksonville, FL based Armor Holdings has ttm revenue of $2.80 billion and EBITDA of $329.15 million.  At an Enterprise Value of $4.1 billion, BAE is paying 1.46x revenue and 12.46x EBITDA.

Word of the impending transaction may have leaked, as trading volume and price began to sharply escalate during the week preceding the announcement.  The ending share price on May 1st was $70.69.  At the Friday close prior to the announcement before market open on May 7th it had climbed to $82.15.  Thus, while the premium appeared to be only 7%, it was in fact nearly 25% from the close on May 1st.

On Tuesday, BAE, the parent company, announced they were raising $1.5 billion in a share placing to help fund this acquisition. The balance will be funded by cash on hand. 

Armor Holdings was created in 1996, focusing primarily on body armor for law enforcement. Through a steady string of acquisitions, the company added businesses that include safety seats for military pilots, private armored cars and police equipment such as handcuffs. In 2006, it bought Stewart and Stevenson Services, Inc., a prime military contractor for wheeled vehicles.

The Rockville-based BAE Systems Inc. subsidiary already has roughly $10 billion in annual sales, and the company predicts that the addition of Armor Holdings will increase U.S. sales by $3 billion.  Its operations include the design, manufacture, and maintenance of military aircraft, submarines, surface ships, avionics, radar, electronics, weapons systems and also provides IT services.

Warren B. Kanders, Chairman and Chief Executive Officer of Armor Holdings, Inc. said, "We are exceptionally pleased to join forces with BAE Systems plc, a global leader in the defense industry. We would like to thank our shareholders for the constant support they have shown our company through numerous transactions and business initiatives that have enabled us to deliver superior investment returns. Importantly, we would also like to thank our management team and our Board of Directors for their dedication and stewardship over the years."

Robert R. Schiller, President of Armor Holdings, Inc., commented, "We are excited to move this business to the next phase of its development. We have no doubt that BAE Systems will place the needs of our customer and those of the men and women in uniform who depend on our products at the center of their ongoing effort. We owe a special thanks and a deep debt of gratitude to each of our over 8,000 employees around the world. Their tireless commitment to excellence and innovation has and will continue to make this organization strong for many years into the future."

Commenting on the proposed acquisition, Mike Turner, BAE Systems’ chief executive said:  “Armor Holdings is a strong business with an excellent track record and a highly regarded management team. The combination of Armor Holdings with BAE Systems’ existing land systems business will strengthen our capabilities to the benefit of the US and UK armed forces and their international allies.”

The deal is scheduled to close in the third quarter, but must first pass antitrust review and scrutiny by the Committee on Foreign Investment in the United States, which reviews transactions that could have national security implications.

We hope that you find this feature from Sokoloff & Co. interesting, informative and useful.  We welcome your comments and suggestions.

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