May 10, 2010 / 4:53 PM / 8 years ago

Exclusive: Boeing, BAE, Raytheon eye Argon

NEW YORK (Reuters) - Boeing Co (BA.N), BAE Systems Plc (BAES.L) and Raytheon Co (RTN.N) are among the companies in talks to acquire defense manufacturer Argon ST Inc STST.O, sources familiar with the matter said.

Argon, which hired advisers for its sale in January, has asked potential buyers for $30 a share, the sources said, a price that values the company at $660 million based on fully diluted shares outstanding.

Argon, which makes sensors for intelligence, surveillance and reconnaissance systems, has completed management presentations with Boeing, BAE, Raytheon and a few other companies, the sources said. They spoke on condition of anonymity because details of the auction are not public.

Boeing and Argon declined comment. BAE and Raytheon were not immediately available for comment.

The asking price of $30 a share reflects a premium of 40 percent over the closing price on Friday, January 8. News of a potential sale broke on Monday, January 11, and the shares had risen 13 percent since.

The stock rose another 16 percent Monday on news of the possible buyers, reaching a 52-week high of $27.86 before backing off a bit to $24.74, up 4.2 percent.

The asking price represents a multiple of 12.3 times Argon’s adjusted trailing EBITDA, or earnings before interest, taxes, depreciation and amortization.

Deal valuations in the aerospace and defense sector often from seven to 10 times EBITDA.

Higher-multiple companies usually have key proprietary technologies, are in high-growth areas, or have access to customers in the intelligence arena. Those companies could push multiples of 12 to 14 times EBITDA, industry experts have said.

NOT A TRADITIONAL AUCTION

Argon, which hired Stone Key Partners to advise it on the sale, is not holding a traditional auction with bidding rounds. The company communicated an asking price to the interested parties and completed management presentations more than a week ago, the sources said.

Even though none of the potential buyers have put in official bids, they are now conducting due diligence on Argon, the sources said.

Argon has not set a deadline for bids and will likely conduct a fluid process that involves discussions with parties instead of official bidding rounds, the sources said.

Fairfax, Virginia-based Argon was founded in 1997 by Terry Collins, Thomas Murdock and Victor Sellier, who collectively own almost 35 percent of the company.

    They are Argon’s largest shareholders, aside from Toth Financial Advisory Corp, which owns roughly the same amount as Collins -- 12.5 percent. Sellier and Murdock own 11.3 percent and 10.8 percent respectively.

    Collins is the current chief executive of the company, while Murdock and Sellier have retired but remain on the board of directors.

    The three founded Argon Engineering Associates, which merged with Sensytech in September 2004, becoming Argon ST.

    AREA OF INTEREST

    Argon focuses on an area that is drawing interest from defense companies as the Obama administration restructures the defense budget to spend more on research and development for unmanned war and less in other areas.

    Valuations in the defense industry had fallen slightly from a year earlier when a sudden credit collapse and volatile stock drops created big gaps between what sellers thought they were worth and what buyers were willing to pay.

    As markets and stock prices stabilized this year, those valuation gaps have narrowed slightly, and defense dealmaking has become very active in recent weeks, many industry sources have said.

    Reporting by Jui Chakravorty; Editing by Gerald E. McCormick and John Wallace

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