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SYDNEY/LONDON (Reuters) - BAE Systems (BAES.L) is buying Australian defence contractor Tenix Defence for up to A$775 million (347 million pounds) in cash, aiming to more than double its presence in the country.
The acquisition of privately-owned Tenix "adds a major naval business to our portfolio and significantly increases our land capability," BAE Australia's chief executive Jim McDowell said on Friday.
It is the second noteworthy deal for Europe's biggest defence contractor in a month. On December 21, BAE said it was buying U.S. defence and intelligence services firm MTC Technologies Inc MTCT.O, an Ohio-based provider of aircraft modernization and maintenance services, for $367 million (186 million pounds).
Tenix's activities include supplying and supporting military vehicles for the Australian army and providing systems integration, modification and support for military aircraft. It also has a defence electronics business and a maritime unit.
It had proforma earnings before interest, tax, depreciation and amortisation (EBITDA) of A$56 million on sales of A$699 million in the year to the end of June 2007.
At 11:50 a.m., BAE shares were up 0.7 percent at 481.5 pence to value the business at 17 billion pounds.
Describing Tenix as a "mini BAE", Numis Securities, which rates BAE stock a "buy" with a 595 pence target, said the deal would add over 300 million pounds to sales and about 30 million pounds to earnings before interest and tax. "Including Tenix, we estimate Australia will account for 3 percent of group sales," it said.
The enlarged BAE Systems Australia will have more than 5,500 staff and annual sales of over A$1.2 billion.
BAE said the acquisition was expected to deliver a return in excess of its cost of capital in the first full year.
"Given the desire for domestic content by the Australian government, Tenix should offer revenue synergies as it should enable BAE to win contracts it would otherwise have struggled to win," UBS analysts said in a broker note.
"Given the outlook for Tenix's businesses we believe BAE expects low double-digit profit growth from Tenix ... We estimate Tenix is about 1 percent accretive to BAE's EPS (earnings per share)," said UBS, which rates BAE stock a "buy" with a 570p target.
Private equity firm Carlyle Group CYL.UL and Australia's Leighton Holdings Ltd LEI.AX had also been seen as possible contenders to acquire Tenix.
Lehman Brothers advised BAE Systems on the transaction which is subject to regulator clearances.
Tenix had appointed UBS to advise on a sale after the owners, the Salteri family, decided to consider an auction following a strategic review of the business.
Editing by David Holmes