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BAE Systems in merger talks with EADS

By Reuters 12 September 2012

Britain's BAE Systems said on Wednesday it was in talks about a merger with EADS , the parent of Airbus, to create a European powerhouse in aerospace, defence and security. By Paul Sandle.

BAE shareholders would own 40 percent of the combined group and EADS shareholders the remaining 60 pct with the combine structured as a dual-listed company, BAE said in a statement.

“The potential combination would create a world class international aerospace, defence and security group with substantial centres of manufacturing and technology excellence in France, Germany, Spain, the UK and the USA,” BAE Systems said.

Shares in BAE Systems closed up 10.6 percent at 353 pence, while EADS closed 5.6 percent lower in Paris.

The two companies have a long history of collaboration and are partners in a number of projects, including the Eurofighter and would also brings BAE back into having a direct interest in Airbus and its British plants, having sold its 20 percent stake in 2006.

Combined, BAE and EADS would have combined sales of about 72 billion euros, based on 2011 numbers, and would have 220,000 employees worldwide.

The companies said that due to the sensitive nature of the companies’ defence business in countries stretching from the United States to Saudi Arabia and Australia, they were talking to governments around the wrold about the deal.

They said certain defence activities would be ringfenced with governance arrangements appropriate to their strategic and national security importance, particularly in the United States, given the importance of that market to the enlarged group.

A merger of the two European aerospace companies would not be expected to raise antitrust concerns in the United States given the modest amount of U.S. military revenues generated by EADS, according to two sources close to the deal.

They said a merger has been under discussion for several months, spurred in large part by concerns about declining defence budgets in Europe and the United States.

U.S.-based defence consultant Loren Thompson said a merger of the two European companies would create a larger enterprise that was equally strong in commercial and military products, the same strategy pursued for years by Boeing Co..

A Pentagon spokesman had no immediate comment on a possible merger.

A top Pentagon official told Reuters last week that further big budget cuts could make the U.S. Defense Department rethink its current wariness about additional mergers among top-tier companies in the weapons industry. DM

Photo: An Airbus A-380 aircraft flies next to a Swiss Airforce FA-18 fighter jet next to the Titlis in eastern Switzerland January 21, 2010. The Airbus A-380 is for the first time in Switzerland to test and confirm its compatibility at the Swiss airports of Zurich and Geneva. Picture taken January 21, 2010. REUTERS/HO/Swiss Airforce

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