British defense contractor BAE Systems said yesterday it has agreed to acquire Arlington, Va.-based United Defense Industries (UDI), maker...

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WASHINGTON — British defense contractor BAE Systems said yesterday it has agreed to acquire Arlington, Va.-based United Defense Industries (UDI), maker of the Bradley Fighting Vehicle, in a $4.2 billion deal.

The acquisition has the potential to create a powerful trans-Atlantic union that would supply ground-combat vehicles and support systems both to the Pentagon and to military forces across Europe. It comes at a time when the market for serving the British and U.S. armies is particularly hot as continued violence in Iraq creates demand for new vehicles and replacement parts.

“Spending on land-based systems is way, way up,” said Stuart McCutchan, publisher of Defense Mergers & Acquisitions. “The military has got a lot of vehicles over there [in Iraq] that are getting heavy-duty use. They’re being run hard.”

BAE, Britain’s largest defense contractor, will pay $75 per share in cash for UDI, for a total of $4 billion. BAE will also assume $218 million in UDI debt.

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UDI stock soared $15.09 to close at $73.35 yesterday, after news of the deal broke before morning trading.

Analysts said the acquisition would give BAE, already the biggest foreign player in the U.S. defense market, an even better chance of winning top Pentagon contracts. It also provides United Defense improved access to European markets where BAE has traditionally been strong.

The combined companies present a formidable challenge to General Dynamics, which is the leading provider of ground-based vehicles to the Pentagon and also has a significant presence in Europe.

BAE has traditionally focused on supplying military forces with electronics and information technology. But last year the company bested a General Dynamics offer to purchase British-based Alvis, a London-based maker of armored vehicles. The deal thrust BAE and General Dynamics into direct competition with one another, a contest that is likely to intensify with yesterday’s deal.

The BAE-United Defense companies plan to create a global land-systems business that would be headquartered in the Washington, D.C., area as part of the British firm’s U.S. subsidiary, BAE Systems North America. The land-based systems business would be headed by UDI managers, who are expected to retain their jobs. At the moment, no layoffs are expected at either company as a result of the deal, BAE officials said.

Mark Ronald, chief operating officer of BAE Systems and president and chief executive of BAE North America, said the UDI purchase was intended to help the company “stay ahead of the market” as the Pentagon begins to shift more money toward Army programs.

“The emphasis on the Army is clear,” he said, adding that “we don’t see this as a short-term phenomenon.”

The acquisition gives BAE a slice of the Future Combat System, a modernization effort that represents the Army’s largest procurement program. BAE already does the air- and ground-communications system for the program.