By : American Press

Walt Havenstein, the chief executive of BAE's 36,000-strong US business, was in a bullish mood Monday about the prospects for the $4.1bn (£2bn) takeover of Armor Holdings.

The fall-out from the UK's abandoning of a fraud probe into Saudi Arabian arms deals had led to questions about BAE Systems' future growth in the US.

The White House issued a diplomatic protest to Britain in January, and while the US Department of Justice has not indicated so far that it will pick up the case, there have been rumblings of discontent in Congress.

Given its timing, however, the deal for Armor will, if successful, be taken by BAE executives as evidence that the Saudi furore has not affected long-term prospects in the US. With the Pentagon budget running at about $700bn yearly, this is crucial for the company.

"We have made 12 or so acquisitions in the US over the past seven years, with a 100 per cent success rate," says Mr Havenstein. "I believe our stewardship of these businesses has been flawless and that this makes more of a difference than anything else for the US government."

Lending support to BAE's position, a London-based industry analyst points out that US arms manufacturers have a history of falling foul of corruption probes themselves and that the British company, which consistently proclaims its innocence, has not been found guilty of anything so far.

Investment analysts at Prudential Equity Group in New York and Stephens Inc in Little Rock, Arkansas, also backed Mr Havenstein's analysis, saying they did not foresee the emergence of higher bids or barriers to the deal.

The Armor acquisition would cement BAE's position as a world leader in armoured vehicles, at a time when the experience of Iraq and Afghanistan has placed "troop protection" at the forefront of military doctrine. A deal will mean that 42 per cent of BAE's sales will come from the US in future, up from 36 per cent last year.

As well as the Saudi fall-out, BAE is already coping with a chillier climate for foreign companies buying strategically important US businesses, as demonstrated by last year's controversy over DP World of Dubai's purchase of P&O, the owner of several US ports.

On top of examining anti-trust issues, the US government's Committee on Foreign Investment in the US (CFIUS) will consider any potential issues of national security. BAE is confident that the transaction will pass regulatory hurdles without a problem, but given the difficulties faced by DP World, nothing can be taken for granted.

While an Armor deal bolsters BAE's position in the US defence industrial landscape, the company has recently eased back on its bolder transatlantic ambitions.

For example, Mr Havenstein said there were no current plans to seek a US listing, even though some rival executives feel that could be crucial if BAE wants to break into the group of top-five Pentagon suppliers – a previously held aspiration.

Until the beginning of this year, BAE described itself as the "premier transatlantic defence company". But in a telling departure from its US-dominated strategy, it recently switched this to "premier global defence and aerospace company".

Possible mergers with top-five US defence companies such as Raytheon and General Dynamics appear off the table for now, although speculation of an approach from Boeing still re-emerges periodically.

As well as the US, Mike Turner, BAE's chief executive, now talks up prospects in several international markets, including the UK, Saudi Arabia, Australia and South Africa. BAE also wants to build its presence in Asian countries such as India, although it faces stiff competition from the US.

"I don't agree with the arguments about a US listing or a need for a US chief executive for the whole group," says Mr Havenstein. "I feel we are uniquely positioned in all our home markets."

There is little doubt that in Britain, BAE's biggest customer before Monday's deal, the company has made strides towards building a more attractive business. Profit margins in Saudi Arabia are good and more foreign sales of the Eurofighter Typhoon would be welcome.

But BAE staked much of its future on grabbing a bigger portion of the vast US military budget, a strategy that led to selling its share in Airbus, the passenger jet maker.

Continued growth in the US, where well looked-after contractors make returns on capital of about 20 per cent, remains critical.