BAE will purchase Armor Holdings

British defense contractor BAE Systems Inc. yesterday said it would buy Armor Holdings Inc., an armor manufacturer in Jacksonville, Fla., for $4.1 billion.

The Rockville-based North American subsidiary of BAE Systems PLC offered $88 cash to Armor Holdings shareholders, 7 percent above Friday’s close of $82.15.

Shares of Armor Holdings rose 5.4 percent to $86.60 on the New York Stock Exchange yesterday. BAE shares did not trade because the London Stock Exchange was closed for a holiday.

Armor Holdings has seen big profits from military contracts for its body armor and vehicle armor products for Humvees and other military trucks.

“This acquisition will enhance our North American operations, and we can now provide both tracked and wheeled vehicles,” said John Measell, a spokesman for BAE Systems Inc

BAE manufactures tanks and vehicles, such as the Bradley tanks, which run on tracks rather than on wheels .

The deal is expected to close in the third quarter after regulatory reviews and shareholder approval.

Stock analysts said they aren’t expecting any regulatory issues and doubt any rival bidders would make a higher offer.

This is BAE’s second major purchase of a U.S. armor company in the past two years. In 2005, BAE Systems paid $4.19 billion for United Defense Industries Inc., an Arlington contractor that manufactures armored vehicles.

The effectiveness of snipers and improvised explosive devices (IEDs) in Iraq have increased the U.S. military’s demand for body and vehicle protection for coalition troops.

As a result, armor companies have seen profits soar.

Armor Holdings’ revenue increased 44 percent in 2006 to $2.36 billion from $1.64 billion the previous year.

“The market for the replacement of military vehicles is going to be a $50 billion opportunity over the next 20 years,” said Timothy Quillin, an analyst at Stephens Inc., an investment banking firm in Little Rock, Ark.

“What’s happened is that we’ve learned that our current fleet of military vehicles are not adequately protected,” Mr. Quillin said. “Now the military is making sure that the next generation of vehicles will have better force protection.”

Mr. Quillin’s company does not own shares of Armor Holdings Inc.

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