AeroVironment Inc (AVAV)

[DewDiligence]

Textron to Acquire UIC

http://online.wsj.com/article/SB119184172321552090.html

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Drone Maker Seen As Growth Platform for Defense Firm

By KEVIN KINGSBURY and ANDREW EDWARDS
October 9, 2007

Textron Inc.'s agreement to buy United Industrial Corp. for about $1.1 billion reflects the role unmanned aircraft are playing in U.S. military operations -- and the business opportunities for defense companies.

United Industrial, of Hunt Valley, Md., specializes in drones, which can be piloted from far away and are able to linger over the battlefield much longer than traditional fighter craft. Drones have played an important role in military operations in Iraq and Afghanistan. Textron, a Providence, R.I., conglomerate, is a big company in military helicopters and armored vehicles, but has little presence in unmanned aircraft.

Bank of America Corp. analyst Robert Stallard said United Industrial is a "sensible fit" for Textron, though he added the price is high. The deal values each common share of UIC at $81, a 7.1% premium to Friday's closing price.

"We see the [unmanned vehicle] space as a great potential for defense companies over the long term," Mr. Stallard said in a note. But he expressed concerns about the possibility of a plateau in defense spending, saying "we remain wary that when the supplemental [spending] begins to wind down that there may be a funding squeeze."

The U.S. plans major investments in such aircraft, which it gets from a number of contractors. Earlier this year, the Air Force launched its first dedicated unit for unmanned aircraft.

AAI Corp., the wholly owned unit through which United Industrial operates, has 2,500 employees and projected revenue of $700 million for 2007.

"AAI is a superb strategic fit for Textron," said Textron Chief Executive Lewis Campbell. "The addition of AAI broadens our leadership into unmanned vehicles. This combination of capabilities represents a very powerful growth platform, both in the near and long term."

In the second quarter, United Industrial reported net income of $10.1 million on sales of $183.2 million.

United Industrial will be incorporated into Textron's Bell Helicopter unit. Beyond unmanned aircraft, UIC builds aircraft and satellite ground-control and testing systems, training systems and countersniper devices.

In 4 p.m. composite trading yesterday on the New York Stock Exchange, UIC's shares rose 6.3%, or $4.77, to $80.39. Textron's shares fell 2.1%, or $1.37, to $64.01, also on the Big Board.
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