BAE to appease shareholders with share buyback: paper

LONDON Sun Oct 14, 2012 8:54am EDT

LONDON (Reuters) - BAE Systems (BAES.L) plans to spend the proceeds of a Saudi arms deal on a share buyback to appease investors following the collapse of its $45 billion merger with Airbus parent EADS EAD.PA, the Sunday Times reported.

The defense group has been in negotiations with Saudi Arabia on the Typhoon Salam program to supply the Gulf kingdom with Eurofighter Typhoon jet fighters, a deal which is worth more than 7 billion pounds ($11 billion).

BAE sources said a share buyback was a likely use of cash from the deal, the British newspaper said.

Invesco, BAE's biggest shareholder, has been pushing the company's directors to return cash since May last year when its top fund manager Neil Woodford wrote to chairman Dick Olver, the Sunday Times said.

The letter, which the newspaper said it had seen, criticized the company for considering takeovers rather than share buybacks, and made clear that Woodford would consider all options including a push to replace the board.

The newspaper said he was now seeking to rally other shareholders to push for a buyback and new management, it said.

Talks to create the world's largest aviation and defense company collapsed on Wednesday. Invesco, which holds a 13.4 percent stake in BAE, had opposed the deal on concerns over state interference, poor terms and a lack of strategic rationale.

BAE declined to comment on the report. Invesco was not immediately available to comment.

($1 = 0.6216 British pounds)

(Reporting by Brenda Goh; Editing by Erica Billingham)