Business

September 14, 2012

BAE Systems, EADS confirm combination talks

U.K. defense contractor BAE Systems PLC and European aerospace company EADS NV announced Sept. 12 that they are in talks about combining their businesses.

The deal would create a global aerospace and defense giant in a sector facing challenges and uncertainties amid cuts to government defense budgets in Europe and the United States.

The merged companies would have combined sales of more than $90.3 billion and more than 220,000 employees.

EADS is already one of Europe’s biggest companies, parent to planemaker Airbus, helicopter maker Eurocopter, satellite builder Astrium and defense electronics contractor Cassidian.

Airbus and EADS have long been rivals to U.S.-based Boeing in civil and defense aviation. The proposed deal is a clear shot at catching up to Boeing’s defense business – and passing it.

The U.S. and European firms have fought ruthlessly in the courts over government subsidies, and competed for years for a huge contract to build new aerial refueling tankers for the U.S. Air Force, a contract Boeing finally won.

Boeing’s defense and space business had revenue last year of almost $32 billion, from selling Chinook helicopters and F-18 fighter jets to the U.S. and, increasingly, other countries.

Defense revenue at EADS was a little more than half as much – but by adding BAE, the combined company would have a defense business significantly bigger than Boeing’s.

EADS gets only about one-third of its revenue from defense – something that CEO Louis Gallois has said he wants to change.

BAE and EADS confirmed discussions in a statement to the London Stock Exchange, saying that under the proposed merger, BAE Systems shareholders would own 40 percent and EADS shareholders 60 percent of the enlarged group.

The deal would unite the companies’ boards and management but they would continue to be listed separately on stock exchanges, the statement said.

BAE and EADS pointed to a “long history of collaboration” on projects such as the Eurofighter Typhoon jet, which is partly assembled in Britain and then built by EADS elsewhere in Europe.

EADS would have to pay $322.1 million to its shareholders prior to the completion of any deal in order to align the companies’ different dividend payout policies.

U.K.-based BAE and Netherlands-based European Aeronautic Defense & Space Company acknowledged the sensitive nature of their global businesses and said they had initiated discussions with “a range of governments” about the implications of a merger.

IHS Jane’s analyst Guy Anderson said the proposed deal would change the European defense market beyond recognition, which could pose a tough sell for regulators.

“This is potentially bigger than the Euro merger of ’99 which created EADS,” Anderson said. “The call for consolidation to save the European defense industries has been ringing out for years now, and with this it appears to be happening in a bigger way than ever hoped.”

With BAE and EADs already cooperating on Eurofighter and owning two of the three parts of the MBDA missile making group, a merger would change ownership structures across Europe, and Anderson said regulators would need convincing that it won’t crush competition.

“It will probably take a while to unravel all the details and find the actual degree of overlap,” Anderson added.

EADS is jointly French and German-owned – though incorporated in the Netherlands – with dual headquarters in Munich and Paris as well as the Airbus headquarters in Toulouse, France. It already has to manage political considerations when it makes decisions such as where to build a factory, said Cai von Rumohr, an aerospace analyst at Cowen & Co.

“There’s always political machinations between the French and the Germans,” he said. “Now if you put the British in the mix, I think that’s going to get further complicated.”

The British government said it was aware of the proposed deal and was working with both companies “to ensure that the U.K.’s public interest was properly protected.”

The companies said they envisioned that certain defense projects of each company “would be ring-fenced with governance arrangements appropriate to their strategic and national security importance.”

They also envisioned issuing special shares in BAE and EADS to each of the French, German and U.K. governments to replace existing government stakes in the two companies.

Any agreement on the terms of merger would require approval by the boards of both companies, according to the stock exchange statement.

The companies have until Oct. 10 to announce a deal or walk away from a merger.

BAE, which produces Astute nuclear-powered submarines and is the largest supplier of land vehicles to the U.S. army, last month reported a slight dip in first-half profits and cautioned about its U.S. outlook amid uncertainty over defense spending ahead of November’s presidential election.

 




All of this week's top headlines to your email every Friday.


 
 

 

Headlines April 23, 2014

News: U.S. conducts spy flights over Russia - After a tit-for-tat series of delays, the United States conducted an Open Skies Treaty intelligence flight over Russian territory April 21, a State Department official said.  Army paratroopers heading to Poland after Russian annexation of Crimea - U.S. Army paratroopers are arriving in Poland to begin a series of...
 
 

News Briefs April 23, 2014

U.S. military deaths in Afghanistan at 2,177 As of April 22, 2014, at least 2,177 members of the U.S. military had died in Afghanistan as a result of the U.S.-led invasion of Afghanistan in late 2001, according to an Associated Press count. The AP count is one less than the Defense Department’s tally. At least...
 
 

Northrop Grumman sets new greenhouse gas emission reduction goal of 30 percent by 2020

Northrop Grumman announced April 22 its commitment to reduce greenhouse gas emissions by 30 percent from 2010 levels by 2020, as part of its commemoration of Earth Day.   “Northrop Grumman is dedicated to top performance in environmental sustainability,” said Wes Bush, chairman, chief executive officer and president. “This new goal sets the bar significantly...
 

 

Lockheed Martin demonstrates enhanced ground control system, software for small UAV

Lockheed Martin’s Group 1 family of unmanned aircraft systems is migrating to enhanced automation capabilities using its Kestrelô “Fly Light” flight control systems and industry-leading mobile Ground Control Station software. The increased automation allows operators to focus on executing the mission, rather than flying various aircraft. Earlier this year, Lockheed MartinR...
 
 

U.S. Navy awards General Dynamics $33 million to operate, maintain military sealift ships

The U.S. Navy has awarded General Dynamics American Overseas Marine LLC a $32.7 million contract modification to operate and maintain seven large, medium-speed, roll-on / roll-off ships for the Military Sealift Command. AMSEA is a wholly owned subsidiary of General Dynamics. Under the terms of the modification, AMSEA will provide services including crewing, engineering, maintenance,...
 
 

US Navy deploys Standard Missile-3 Block IB for first time

In partnership with the Missile Defense Agency, the U.S. Navy deployed the second-generation Standard Missile-3 Block IB made by Raytheon for the first time, initiating the second phase of the Phased Adaptive Approach. “The SM-3 Block IB’s completion of initial operational testing last year set the stage for a rapid deployment to theater,” said Dr....
 




0 Comments


Be the first to comment!


Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>