Safran and BAE Systems to Buy L-1 Identity Solutions

French state-controlled Safran, which sells anything from jet engines to drones to guidance systems, said Monday it is buying Connecticut-based security firm L-1 Identity Solutions (ID) for $1.09 billion in cash, or $12 per share -- a 24% premium over the shares Friday's close of $9.70. ID shares soared over 21% in premarket trading.

This is actually a three-way deal with U.K-based BAE Systems -- another global defense, security and aerospace company -- buying L-1's government security consulting services for nearly $296 million. Safran, whose core businesses are in aerospace, defense and security, is acquiring L-1's biometric business.

The deal, which has been approved by Safran and L-1 boards, will result in significant operating synergies of around $30 million, Safran said, which will be realized within 18 months of closing the deal. L-1 said the BAE Systems transaction, which is subject to certain U.S. regulatory approvals, is expected to close in the fourth quarter of 2010. It expects the deal with Safran to close by the first quarter 2011.

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The Safran acquisition is subject to the closing of the BAE Systems transaction first, L-1 stockholder approval, review by the U.S. Committee on Foreign Investment in the United States and certain other conditions, including Hart-Scott-Rodino antitrust review. But Safran believes it will pass regulatory muster as it already has dealings with General Electric (GE), Boeing (BA), Lockheed Martin (LM), other U.S. companies, as well as notable U.S. government agencies, including the U.S. Armed Forces and the FBI.

"Safran intends to operate L-1 as part of its existing security business, Morpho, in accordance with U.S. national security regulation, to create an industry-leading provider of solutions for high-tech homeland security," Safran said in a statement.

"I have a deep respect for L-1's business and its contribution to the security industry," Safran CEO Jean-Paul Herteman said. "[W]e are looking forward to working with them to bring L-1 and Morpho together. This will allow us to grow L-1's business, while expanding the reach of L-1's services to other key territories around the world."

President and CEO of L-1 Robert LaPenta added, "Safran will provide a strong global reach and a more comprehensive portfolio of solutions and services in order to leverage the industry's best set of collective experience and solutions."

L-1, which put itself up for sale in January and was courted by several companies, sells face-recognition, iris, finger print and other biometric products to government agencies and to financial institutions. The use of biometrics has increased and moved also to mobile applications. As defense budgets were cut, large companies looked for ways to expand, and the the market for smaller defense firms offering more specialized solutions has heated up.
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