Industry Week in Review – September 14, 2012

Over the past week, European Aeronautic, Defence & Space Co. (“EADS”) and BAE Systems have confirmed they are in discussions regarding a possible combination of their businesses.  EADS shareholders would control 60% of the new entity and BAE shareholders would own 40% according to company announcements.  Following the news, EADS stock fell as much as 10% while BAE declined as much as 9.2% on concerns that a combined company would struggle to penetrate the U.S. defense market and find cost savings. 

According to regulatory code, EADS is required to announce a transaction by October 10th, 2012 or announce that the companies are no longer interested in pursuing a transaction.  However, the deadline can be extended if the companies are still in discussions at that time.

Moreover, the House Appropriations Committee unveiled a stopgap spending measure that would continue funding the Pentagon at current levels and provide $88.5 billion for the war in Afghanistan and other ongoing global operations.  If approved, the spending measure would fund all federal activities through March 27th.  Both Republican and Democrat House panel representatives criticized the use of continuing resolutions noting the use of stopgap measures hinders Pentagon officials and industry executives’ ability to properly run programs and make business decisions.

Big Movers

Analogic Corporation (Up 14.4%) – Shares are up this week after the company announced its net income more than doubled in the fiscal fourth quarter on greater sales of ultrasound and security products.  Analogic said it expects organic revenue growth in the “high single digits” in fiscal 2013.

Macdonald Dettwiler & Associates Ltd.(“MDA”) (Down 13.4%) – Shares fell this week amid news that the U.S. Department of Justice asked for a “second request” relating to the company’s Montreal satellite communications antenna and payload business.  The department’s request delays MDA’s $875 million takeover bid for California-based Space Systems / Loral Inc.

Relevant Transactions

General Dynamics Corp. (“GD”) acquired Open Kernal Labs Inc., a provider of virtualization software for securing wireless communications, applications, and content for mobile devices and automotive in-vehicle “infotainment” systems.  The acquisition is GD’s third in the past month.  Terms of the deal were not disclosed.

KEYW Holding Corp to acquire Poole & Associates, Inc., a provider of software and systems engineering to U.S. intelligence agencies, for $116 million in cash and $10 million in stock.  The acquisition is expected to increase KEYW’s 2013 revenue by about $90 million.

KEYW Holding Corp to acquire SenSage, Inc., a provider of Security Information and Event Management (“SIEM”) and event data warehousing solutions for $18.0 million in cash and up to $16.5 million in stock.  KEYW expects the acquisition to play an integral role in what it has deemed “Project G”, a cyber awareness and response platform that the company is preparing to launch.

Click here to review comparable company analysis.