By Gregor Ferguson
BAE Systems Australia has bought Tenix Defence Pty Ltd, for $775 million.
The deal was signed in Sydney on 18 January, and remains subject to regulatory approvals in both Canberra and Washington DC, but is expected to be completed by mid-2008.
It makes Adelaide-based BAE Systems Australia the country's biggest defence contractor, with revenues of $1.21 billion and a workforce of 5,300 personnel.
It also makes BAE Systems Australia prime contractor for the RAN's $3 billion program to build two amphibious landing ships, or LHDs, as well as Australia's major player in the land systems sector.
In 2007, according to ADM's latest Top 40 listing, Tenix reported revenues from its defence businesses of $650 million and a workforce of 2,500 personnel.
BAE Systems had revenues of $560 million with a 2,800-strong workforce.
"This acquisition more than doubles BAE Systems' footprint in Australia, making us the largest, in-country, through-life capability provider to the Australian Defence Force," BAE Systems Australia's CEO, Jim McDowell, said in a statement 18 January.
"It will significantly enhance the depth and breadth of our capabilities in Australia, adding a major naval business to our portfolio while significantly increasing our land capability."
"BAE Systems is one of the largest defence companies in the world with a record of innovation and leadership in the defence sector," said Tenix Chairman Paul Salteri.
"BAE Systems's purchase of Tenix's defence businesses will position these operations for the future through access to enhanced R&D, expanded distribution networks and access to greater capital.
"[It] has the scale, the depth of production activities and the experience to achieve the objectives that we set at the start of this sale process of fostering international growth for Tenix's defence businesses."
Bird of a feather
McDowell told ADM the two companies have significant 'complementarity': BAE Systems is a major manufacturer of artillery, armored vehicles and trucks in the US and U.K.; in Australia the company is a contender to replace the Australian Army's 155mm towed artillery, and is already prime contractor for the medium/heavy component of the Army's Project Overlander.
Tenix, meanwhile, is prime contractor for the Army's M113 upgrade as well as a contender for the artillery contract.
Similarly, the two companies are Australia's leading electronic warfare specialists.
Between them they manufacture Electronic Warfare Self Protection (EWSP) systems for Australian Defence Force helicopters, transport and patrol aircraft and surveillance systems and anti-missile decoys for RAN, US Navy and Canadian warships.
But Australia has difficulty sustaining two competing EW specialists, McDowell told ADM.
"This makes it easier to make investment decisions and gives us a fighting chance of sustaining the capability over the time."
The deal means BAE Systems will also acquire Tenix's two warship and patrol boat construction yards at Williamstown and Henderson, near Fremantle in Western Australia.
As well as building the two Canberra-class LHDs for the RAN, the company is building five offshore and inshore patrol boats and a multi-role vessel for the Royal New Zealand Navy under the NZ$500 million Project Protector.
In the longer term the marine business will be a strong through-life support contractor for the RAN.
However, it's unclear whether or not Australia's new defence giant will be allowed also to buy the government-owned submarine and warship builder ASC Pty Ltd, Port Adelaide, when this is put up for sale later this year.
McDowell told ADM the Australian government hasn't said when ASC will be sold, nor how, nor how much of it.
"The process isn't clear," he said, declining to comment on the issue.
ASC, which recorded revenues of $312 million in 2007, is prime contractor for the RAN's $8.1 billion Air Warfare Destroyer program and also has a $3 billion, 20-year contract to provide in-service support for the RAN's six Collins-class submarines.
The Tenix purchase also includes two major joint ventures - RLM Systems Pty Ltd, a specialist systems engineering company jointly owned by Tenix and Lockheed Martin; and TenixToll Defence Logistics, a partnership with freight and logistics firm Toll Holdings, which currently has the $900 million Defence Integrated Distribution System (DIDS) transport and warehousing contract with Defence.
Both partners have first refusal on Tenix's share in these joint ventures, McDowell said, but BAE Systems is keen to acquire Tenix's share in both: BAE Systems Australia's Support Services division has strong synergies with TenixToll's operations; and RLM Systems is responsible for supporting and upgrading the RAAF's JORN radar system, while BAE Systems Australia has supported operations and research at the experimental Jindalee over the horizon radar test bed at Alice Springs for some 20 years, he pointed out.
The purchase of Tenix requires formal approval from the Australian government's Foreign Investment Review Board and also the US State Department where the latter's International Traffic in Arms Regulations (ITAR) apply to both companies.
But Tenix's CEO, Greg Hayes, briefed US officials in Washington late last year on the sale process, whole BAE Systems' McDowell said the Australian government had been briefed and consulted at every step so the deal is unlikely to be derailed by either government's red tape.
The company's headquarters will remain in Adelaide, according to McDowell, and Tenix will be integrated into the new organisation using the tools and processes BAE Systems has developed over the past five years through its program of mergers and acquisitions in North America and Europe.
Copyright - Australian Defence Magazine, February 2008