UK defence contractor BAE Systems has confirmed that it is in talks with US-based TRW over 'extending' its activities in North America.

BAE was reported over the weekend to be considering a takeover offer for TRW, a move which could spark a bidding war with rival US defence firm Nortrhop Grumman.

TRW shareholders are already weighing up a bid worth $6.7bn (�4.6bn) from Northrop Grumman, with a decision due by Friday.

BAE said on Monday that TRW's decision to put itself up for sale "may offer an opportunity to extend further BAE Systems defence activities in North America."

"The company has therefore established a dialogue with TRW," it added.

Security concerns

According to media reports, BAE is currently scrutinising TRW's accounts, and is likely to make a formal takeover offer this week.

BAE was also reported to have held talks with the Pentagon in order to gauge whether or not the US authorities would object to the takeover on national security grounds.

While Washington has traditionally resisted foreign takeovers of US defence firms, it is thought that officials may make an exception in the case BAE Systems, which already has extensive operations in the US.

BAE's US division, one of ten major suppliers of defence equipment to the US military, has annual sales of $3.7bn, and employs 22,000 people.

A successful takeover of TRW would boost BAE's position in the US market for defence-based electronics and information systems.

BAE has already made substantial acquisitions in the US, buying up Lockheed Martin Control Systems and Lockheed Martin's aerospace electronics division two years ago.

Shareholders' decision

TRW has been up for sale since receiving a hostile takeover bid from Northrop Grumman earlier this year.

If TRW shareholders reject the takeover offers currently on the table, the company is thought likely to pursue an alternative strategy of breaking itself up.

TRW has already asked regulators for clearance to float its car parts division on the New York Stock Exchange.