Merger gives British firm a bigger U.S. defense role

With the takeover of United Defense, British company BAE Systems could pack a political punch on Capitol Hill on par with U.S. defense giants Northrop Grumman, Lockheed Martin and Raytheon. On Friday, the Department of Justice approved BAE Systems North America’s estimated $4.2 billion takeover of U.S. armored-vehicle maker United Defense, thus clearing the final hurdle of the merger. The move will make BAE Systems, already one of the largest defense companies in the world, the top foreign company receiving high-profile Pentagon business.

With the takeover of United Defense, British company BAE Systems could pack a political punch on Capitol Hill on par with U.S. defense giants Northrop Grumman, Lockheed Martin and Raytheon.

On Friday, the Department of Justice approved BAE Systems North America’s estimated $4.2 billion takeover of U.S. armored-vehicle maker United Defense, thus clearing the final hurdle of the merger. The move will make BAE Systems, already one of the largest defense companies in the world, the top foreign company receiving high-profile Pentagon business.

Courtesy of the Department of Defense
The Army’s M3A3 Bradley Fighting Vehicle


Now with businesses in more than 30 U.S. states and billions of dollars in Pentagon contracts, BAE Systems will see growth in its financial contributions to congressional campaigns that could propel it among the top five defense corporate political action committees with a war chest of about $800,000.

BAE Systems’ lobbying power also will increase as the company consolidates former United Defense and BAE Systems legislative-affairs offices. The company plans to keep both companies’ outside counsels for now. United Defense is best known for the Bradley personnel carriers, which have been workhorses of the U.S. military campaign in Iraq, and amphibious assault vehicles.

BAE Systems and United Defense will combine their PACs, said John Measell, BAE Systems’ media-relations director. The combined PAC will roughly be equal to what each side was independently spending before the merger, said a lobbyist who worked on several defense-company mergers. BAE Systems will likely max out on contributions to the key defense lawmakers.

The company will move up the ranks on the top defense contributors list, on which campaign-finance watchdog PoliticalMoneyLine ranks Northrop Grumman and Lockheed Martin as No. 1 and No. 2, respectively, with more than $1 million, and Raytheon No. 3 with slightly more than $600,000. Boeing, with significant business in defense and commercial aircraft, is ranked as the No. 5 overall corporate contributor, with $1.2 million.

BAE Systems is going to start to be more aggressive in its Capitol Hill presence, experts said. “BAE is getting more aggressive if you look their 2006 [PAC] cycle,” said Keith Ashdown, vice president for policy at advocacy group Taxpayers for Common Sense. “They are on track to spend more money than they had in previous cycles.”

For the 2005-2006 campaign cycle, the company has already disbursed $214,501 to political candidates, according to PoliticalMoneyLine. BAE Systems has made contributions to key lawmakers on the House and Senate Armed Services committees as well as appropriations committees.

Rep. Duncan Hunter (R-Calif.), House Armed Services Committee chairman, already has received the maximum $10,000, and so did the ranking Democrat, Rep. Ike Skelton from Missouri. Sen. Thad Cochran (R-Miss.), chairman of the Senate Appropriations Committee, received $8,000, while Sen. Ted Stevens (R-Alaska), who is the chairman of the defense appropriations subcommittee received $9,000.

United Defense, which most likely was waiting for the merger to be completed, has not made any disbursements for the current cycle. In the previous cycle, the company had a PAC of $413,700, a significant increase from the $273,000 United Defense spent for the 2002 campaign cycle.

The higher contributions coincide with the U.S. operations in Afghanistan and Iraq, where United Defense’s combat vehicles were highly engaged. PoliticalMoneyLine ranked United Defense as the No. 8 defense corporate PAC contributor. BAE Systems was ranked No. 9, with contributions $376,150. The highest contribution total the company has made to date was $484,276 in 2002, based on PoliticalMoneyLine data.

As a result of the merger, BAE Systems’ new land and armaments division will be handling the lucrative contracts for the Army’s Bradley personnel carriers and the Marine Corps’s amphibious assault vehicles. On Friday, the Army awarded BAE Systems’ land and armaments division a $1.1 billion contract to upgrade and manufacture more than 500 Bradleys. The money comes from a 2005 war supplemental of slightly more than $1.1 billion Congress allotted for Bradley operations, said Doug Coffey, a BAE spokesman.

The company also has an eye on future technology development programs such as the Army’s Future Combat Systems (FCS), a $14.8 billion contract awarded to a team of Boeing Co. and Science Application Corp.

“FCS is a vital program,” said Mark Ronald, CEO of BAE North America, during a teleconference Friday. The combined BAE Systems and United Defense “is the largest subcontractor to the FCS.”

The newly merged company is still trying to figure out how to concentrate its lobbying efforts. The in-house legislative-affairs people from both companies are going to work together, Measell said. Both companies have hired outside lobbying shops, and those contracts are going to stay in place for the time being.

Last calendar year, BAE Systems spent $1.4 million on lobbying while United Defense spent about $2 million. Based on public records, the two companies have only one overlapping lobbying shop, Robinson International.

Lobbying firms on the BAE Systems side include the Livingston Group, the Gallagher Group, Hyjek & Fix Inc., Davis O’Connell and Paw & Associates. On the United Defense side are Northpoint Strategies, Martin Fisher and Associates, Van Fleet-Meredith Group and Meyers and Associates. BAE Systems, even though it considers itself a U.S. company, will likely have to contend with more stringent Buy American provisions that the House has passed, trying to make it more difficult for foreign companies to get large Pentagon contracts.

The merged company will now have significant presence in California, Pennsylvania, Kentucky and South Carolina, where the two companies’ businesses overlap, as well as Minnesota, where United Defense has a large operation.