Chemring Reaches Deal To Acquire ADG Businesses

24th Jun 2010 15:37

By Jonathan Buck Of DOW JONES NEWSWIRES LONDON (Dow Jones)--Chemring Group PLC (CHG.LN) Thursday announced it would acquire the two principal operating units of Allied Defense Group Inc. (ADG) for $59 million in cash in a deal that helps the U.K. missile-defense company complete a transaction that had been snagged by legal complications. Chemring on Jan. 19 announced its intention to buy ADG, whose businesses comprise Mecar SA of Nivelles, Belgium, a niche manufacturer of medium and large caliber ammunition, and Mecar USA Inc. of Marshall, Texas, which provides load, assemble and pack and procurement services for the U.S. government and prime contractors. However, on the same day that the acquisition was announced, ADG received a subpoena from the U.S. Department of Justice requesting that ADG produce documents relating to its dealings with foreign governments. ADG also became aware that day that an employee of Mecar's U.S. subsidiary had been indicted by the DOJ for allegedly engaging in schemes to bribe foreign government officials to obtain and retain business. The unsealed indictment of this employee and the DOJ's press release indicated that the alleged criminal conduct was on behalf of another U.S. company unrelated to ADG or Mecar USA. Chemring on June 1 said it would re-examine the terms of its acquisition after it was informed by ADG that the probe had expanded. Chief Executive David Price told Dow Jones Newswires on Tuesday that Chemring was renegotiating the transaction to minimize its exposure to any liability that ADG may suffer as a result of any possible future litigation. The solution is the acquisition of Mecar SA and Mecar USA rather than parent company ADG. The acquisition of the ADG units, which generated revenue last year of more than $140 million, brings Chemring complementary markets, products and technologies. The Mecar businesses have a strong presence in the Middle East, complementing Chemring's current emphasis on customers from North Atlantic Treaty Organization countries. Chemring will fund the deal from the proceeds of a $280 million private placement it carried out in November. Completion is expected within 90 days. "I am delighted that we have been able to negotiate this revised agreement," said Price in a statement. At 1418 GMT, Chemring's shares were down 108 pence, or 3.5%, at 2,979 pence, while the FTSE 250 index was down 0.8%. -By Jonathan Buck, Dow Jones Newswires; +44 (0)207 842 9237; [email protected] (END) Dow Jones Newswires June 24, 2010 10:37 ET (14:37 GMT)