EADS in $1 billion satcom acquisition

FRANKFURT/PARIS Mon Aug 1, 2011 6:19pm BST

Logo of EADS is seen at the European aerospace and defence group EADS headquarters in Les Mureaux near Paris January 12, 2011. REUTERS/Charles Platiau

Logo of EADS is seen at the European aerospace and defence group EADS headquarters in Les Mureaux near Paris January 12, 2011.

Credit: Reuters/Charles Platiau

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FRANKFURT/PARIS (Reuters) - European aerospace group EADS EAD.PA kept up a hot pace of acquisitions with a $960 million (589.9 million pounds) cash deal to buy satellite communications firm Vizada on Monday, chasing steadier sales from high-value services.

The purchase, from private equity owner Apax France, was flagged by Reuters on Sunday and adds to a string of deals designed to help the Airbus parent firm dispose of surplus cash.

Although Vizada is based in Paris, a contract with the U.S. Army will give Franco-German EADS an extra toe-hold in the United States where efforts to expand have met mixed success.

Vizada provides communications services to 200,000 users in the maritime, aviation and defence sectors and will become part of EADS' Astrium space business.

EADS shares initially rose but dipped 0.9 percent to 23.98 euros in late trading while still outperforming a volatile market.

EADS said the deal would boost its earnings per share and provide "significant" synergies. It did not give a timeframe or amount.

"The key point is synergies. Vizada has high-value products aimed at professionals and its margins can boost EADS earnings. It also makes sense in terms of some pieces of technology that EADS might soon need," said Kepler analyst Christophe Menard.

A two-year mid-Atlantic search to locate the black boxes of a crashed Air France jetliner sparked calls for satellite-based alternatives for collecting data, Menard said.

However people involved in the deal said Vizada would fit mainly into the existing business at Astrium, which already provides secure communications to Britain and German military.

VALUATION FEAR

EADS wants to double the share of services in its revenues to 25 percent and reduce its dependence on Airbus commercial sales to 50 percent of revenues by 2020 from 66 percent now.

In June, EADS bought Canadian repair firm Vector Aerospace for some 450 million euros (393.65 million pounds) and last week Airbus announced a $500 million bid for Danish parts distributor Satair SATA.CO.

Airbus also agreed to buy Metron Aviation, which supplies services for air traffic control, for an undisclosed sum.

Analysts have backed the logic of acquisitions but expressed concerns EADS may be tempted to overpay to shake off cash.

"I would say there is a risk of that," said Nomura Equity Research analyst Jason Adams.

"Given the Satair one and the multiple they are paying for this, at some point the investors will be a bit concerned if they think EADS is overpaying for acquisitions."

Oddo Securities analyst Yan Derocles said he found the valuation of both the Vizada and Satair deals "rather high".

According to EADS, Vizada expects to generate around $660 million in revenue and $95 million in earnings before interest, tax, depreciation and amortisation this year.

Vizada was formed in 2007 from satellite services held by France Telecom FTE.PA and Norway's Telenor (TEL.OL).

The deal is EADS's second-largest acquisition after a 2.75 billion euro buyout of BAE Systems' (BAES.L) 20 percent stake in Airbus in 2006.

Under pressure from analysts to look at better uses for an 11 billion euro net cash surplus, EADS has long said it is ready to spend up to 2 billion euros to fund external growth.

But the pace quickened after it lost a contest with Boeing (BA.N), the world's largest aerospace company, to supply air tankers to the Pentagon in March. The setback removed a chance to make the U.S. a bigger launchpad for internal growth.

EADS has said it would be prepared to look at European companies with a foothold in U.S. defence to gain entry.

Apax Partners said the deal marked its third exit in the telecom sector in two months following sales of Prosodie and Outremer Telecom. It and Vizada were both advised by UBS.

EADS was advised by Messier Partners.

(Additional reporting by Cyril Altmeyer, Vincent Flasseur, Victoria Howley; Editing by David Cowell)