Defense contractor BAE Systems was the best-performing U.K. large-cap company on Monday after announcing plans to buy two different companies that need to be divested for the merger between Raytheon RTN, -0.42% and United Technologies UTX, +0.55% to complete.
BAE BA, -0.25% rose 3.7% as it announced it was buying Collins Aerospace’s military global positioning system business for $1.925 billion in cash and Raytheon’s airborne tactical radios business for $275 million in cash. It will get a $365 million tax benefit from buying the GPS business and another $50 million tax benefit from the radios business.
BAE said both companies complement its U.S. electronic systems business and will immediately lift earnings and cash. Adjusted for the tax benefit, the acquisition price for the GPS business is 12 times estimated Ebitda and will achieve a return on invested capital in excess of cost of capital in the third full year post-completion. The radio business will achieve a return on invested capital in excess of cost of capital in the first full year post-completion, BAE said.
The FTSE 100 UKX, -0.78% meanwhile weakened 0.3% to 7651.44, with volumes light because the New York Stock Exchange and Nasdaq are shut for the U.S. Martin Luther King Jr. holiday.
International Consolidated Airlines IAG, -3.59% and EasyJet EZJ, +4.41% both fell as oil prices rose.
Outside the FTSE 100, Fevertree Drinks FEVR, -0.17% plunged 27.2% after the tonic-water maker reported a smaller-than-expected 10% revenue rise for 2019, which it blamed on subdued Christmas trading in the U.K. Fevertree said margins ended the year behind expectations, and will lead to earnings falling by around 5%. For 2020, it expects Ebitda margins of 28%, which is below the FactSet-compiled broker estimate of 30%.