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The move comes as the Defense Department is cutting some big weapons meant for conventional wars out of its budget while it shops for technology better suited to fight shadowy insurgent groups in places such as Iraq and Afghanistan.

Argon develops systems used in surveillance and combat, including reconnaissance equipment mounted on planes, sensors meant to warn of an approaching enemy and special sights to help troops find snipers. Its primary customers are the Air Force, the Navy and the Department of Homeland Security. The company reported $366 million in revenue in fiscal 2009 and has about 1,000 employees in several states.

Roger Krone, head of Boeing's network and space division, said the company was interested in Argon because of the changing priorities at the Pentagon and because war-fighting technologies are "going to be the really important markets in the future." Boeing gets roughly half of its revenue from government defense, space and security contracts.

The deal shows the willingness of big contractors to make acquisitions as they try to match the Pentagon's shifting priorities, analyst Brian Ruttenbur of Morgan Keegan wrote. "We believe companies in this space are attractive targets for the larger defense contractors who all have strong balance sheets but are facing slowing growth opportunities."

Boeing's offer of $34.50 per share is a 41 percent premium to Argon's closing price Tuesday. Argon said its board had approved the takeover and plans to recommend it to shareholders. The deal is expected to close in the third quarter. Once acquired, Argon will be a stand-alone subsidiary of Boeing.

Argon chief executive Terry Collins was the firm's largest shareholder, with a 12.4 percent ownership stake according to a company regulatory filing in January. He stands to make $93.7 million on his shares if the deal goes through at the proposed price.

Argon shares jumped 40 percent Wednesday to close at $34.29; Boeing shares fell 29 cents, to $62.75.

-- Associated Press