BAE Systems, the global aerospace and defence group, is close to acquiring a minority equity stake in Denel, SA’s state-owned defence group. And announcement could come as early as this week.

BAE Systems, which was identified as the preferred strategic equity partner in October last year, is expected to pay less than £50m for a 20 % - 30 % stake in Denel’s ordnance, aerospace and commercial divisions.

The move is part of BAE Systems’ strategy to become a global defence group with strong alliances in countries where it can attract governments as its major customer. BAE systems has been building up the company’s US interest, which accounted for 31 % of sales last year, following a series of acquisitions.

It also has stakes in several pan-European joint ventures, as well as holding 35 % of Sweden’s Saab. Only 16 % of sales last year were in Britain.

However BAE Systems, which reports first-half results on September 13, has had a difficult year. It suffered a substantial fall in its share price at the start of the year when it warned that a two-year slowdown in orders for military aircraft would hit profits.

At the time, it said it would cut up to 2 000 jobs to help improve its profit growth.

For Denel, which has its roots in the apartheid-era weapons company, Armscor, the partnership is aimed at strengthening its global presence.

Denel has struggled to compete in the global market in recent years and as a result has been earmarked by the SA government for restructuring and partial privatisation by 2004, with the aim of netting about R40bn in revenue from the partial sale.

The defence group has an annual turnover of about R3,4bn. It reported a profit of R24,1m for the year to March, compared with a loss of R206m in the previous year. Sales grew 14 % to R3,8bn, boosted by an improved order book and a radical internal restructuring programme.

BAE Systems was formed in November 1999 from the merger of British Aerospace and Marconi Electronic Systems.

With acknowledgements to Lina Saigol and Business Day.