PARIS France's Safran (SAF.PA) has agreed to buy U.S. security firm L-1 Identity Solutions ID.N for $1.09 billion cash, a source familiar with the deal said on Sunday.
The takeover, which has been backed by the boards of both companies, will see the French state-owned aerospace and defense company buy the whole of L-1 but keep only its core biometrics and identity businesses, which are spread across three units.
L-1's face-recognition and other biometric products are used by government agencies for improving homeland security and border management and commercially at financial institutions.
Two sources familiar with a jigsaw of related transactions said earlier that Britain's BAE Systems (BAES.L) was poised to buy the rest of L-1 -- its government consulting services unit -- for around $300 million, paving the way for Safran's entry.
BAE declined to comment.
"The boards of Safran and L-1 have approved the transaction, but the operation is subject to the approval of L-1 shareholders. It should be wrapped up in the first quarter of 2011," the source familiar with the main Safran deal said.
The shake-up is the latest sign of mid-tier security and defense firms getting snapped up by traditional arms suppliers.
As the top contractors face sharp cuts in defense budgets, they are steadily targeting smaller players with niche technologies in cybersecurity, surveillance and intelligence.
L-1 shares closed on Friday at $9.70 each, valuing the Stamford, Connecticut-based maker of high-tech recognition and security systems at around $900 million.
Under the agreement, L-1's current stockholders will get $12 a share in cash, the source familiar with the Safran deal said.
None of the sources agreed to be identified because the talks remain confidential.
Barring a last-minute surprise, the two deals to transfer control of L-1's assets could be announced later on Monday.
L-1 was not available for comment late on Sunday.
Safran issued an invitation to a previously unscheduled media and analysts' call to be held on Monday at 0700 GMT, but declined to comment on the details of the call.
L-1 was formed in 2006 through a merger of Viisage and Identix.
The company placed itself up for sale in February but moved to split the deal into two parts given a distinction between its biometric identification and government consulting businesses.
Reuters reported last week that Safran, already a player in biometrics, was leading the race to buy most of L-1 including the biometrics and identification activities.
The French deal was contingent, however, on L-1 first lining up a definitive buyer for the government consulting business.
A number of U.S. companies including Virginia-based ManTech (MANT.O), which makes intelligence and national security equipment, were touted as buyers for this part of the company.
But Britain's BAE Systems's leapfrogged these firms as a possible front-runner when sources divulged its interest and said it was close to striking a deal on Sunday.
A BAE Systems spokesman said it was the company's policy never to comment on merger rumor or speculation.
The UK-based company has built up a presence through acquisitions as a leading player in the U.S. defense industry.
(Additional reporting by Soyoung Kim in New York, Tim Hepher in Paris; Editing by Marguerita Choy)