Boeing’s Defense for its Military Security Acquisition (BA)

Boeing (BA)

Boeing Co. seems to have been doing pretty well these past few years. The company has been posting solid profits and increases in earnings. They have been working on a next-generation aircraft, the 787 Dreamliner, which is highly anticipated and has taken many orders already; although its timeline has been delayed approximately two years, it will hopefully be released by the end of this year. The company has a serious competitor in Airbus, but in 2006 Boeing took the lead in terms of number of orders. All of these things are very strong indicators of good performance. This morning, Boeing announced that they would be purchasing a defense contractor. And while this seems like it could be a strong acquisition for the company, why might some people think this is a frivolous purchase for the aerospace company?

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The reason some people might be concerned about the necessity of the purchase is due to the statement that this acquisition will have an “immaterial impact” on Boeing’s earnings. It might be confusing to see why a company would spend so much money to purchase another company, if they don’t expect to get much in return. This deal is being valued at about $775 million, an offer of $34.50 a share, for a company which closed yesterday at $24.43. The company only made $366 million last fiscal year, and as it has been pointed out, this will only add a small amount to Boeing’s revenue, a company which had over $33 billion in military sales last year.

So, the question is, why is Boeing so interesting in acquiring this small company? It’s true, it can’t be purely for their sales numbers. However, the company that they are purchasing, Argon ST, is a combat engineering provider. Argon develops a number of systems and technologies that are being used in the defense arena. Argon has a lot of experience in military electronics, including sensors, which have fundamental uses in key military realms including intelligence and surveillance.

With this in mind, the reasons for the deal are obvious. The government currently has a strong focus on these defensive areas such as surveillance, reconnaissance, and cybersecurity. And as interest in these areas continues to grow, now Boeing will be armed with the resources to provide equipment to the government. The CEO of Argon will remain with the company, which will be operated as a separate unit of Boeing, a division of Boeing Network & Space Systems. It should be a simple transition, and it will have the potential to bring a number of new deals to Boeing. While nothing is ever a sure thing, Boeing seems secure that this will be a beneficial acquisition.

Boeing Commentary:

• Dreamliner chief says production will slow in September – Are the Boeing Dreamliners going to be delayed even further?
• Incidents, events involving Boeing cockpit fires – After approximately eight years, will there finally be an investigation into these electrical issues?
• Airbus, Boeing trade blows ahead of subsidy ruling – A report is due out today on the subsidy battle between Airbus and Boeing.

More Stocks in the News:

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• Cisco Finds Its Tablet – Cisco (CSCO: Charts, News, Offers) announces plans for a new table computer; will it rival Apple’s (AAPL: Charts, News, Offers) iPad?

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