updated 3/7/2005 8:31:09 AM ET 2005-03-07T13:31:09

British defense contractor BAE Systems PLC on Monday said it has agreed to buy U.S. rival United Defense Industries Inc. for nearly $4 billion.

BAE said the move would help it benefit from increased U.S. government spending on military operations in Iraq and Afghanistan and to combat terror.

The company said its wholly owned U.S. subsidiary, BAE Systems North America Inc., had entered into a definitive merger agreement to acquire the fully diluted share capital of United Defense for $75 per share in cash, or some $3.97 billion n total.

Including the assumption of net debt of $218 million, the deal values United Defense at $4.19 billion. The acquisition is subject to the approval of regulators and BAE and United Defense shareholders.

"UDI is a strong business with an excellent track record, outstanding growth prospects and a highly regarded management team," said BAE's chief executive, Mike Turner.

"By combining UDI with BAE Systems existing land systems and North American operations, our capabilities will be strengthened to the benefit of current and future U.S. Department of Defense, UK and Swedish Ministries of Defense programs and their respective armed forces."

United Defense, which employs around 8,000 staff at 25 sites in the United States and Sweden, generated sales of $2.29 billion last year. The company, headquartered in Arlington, Va., designs and develops combat vehicles, artillery systems, naval guns, missile launchers and precision munitions used by the Pentagon and its allies. The group also repairs and converts ships for the U.S. Navy and other U.S. government agencies.

BAE is Britain's largest defense and aerospace group. It owns a stake in aircraft giant Airbus and is taking part in the production of the Eurofighter Typhoon, which is being built jointly by Britain, Germany, Italy and Spain.

Copyright 2005 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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