Defense

October 12, 2012

Political objections derail European defense deal

A deal to create a European defense and aerospace giant to rival Boeing collapsed Oct. 10 when BAE Systems and EADS NV called off merger talks in the face of government objections.

The companies said they had “decided to terminate their discussions” over the proposed $45 billion tie-up because of conflicting interests between the British, French and German governments.

“It has become clear that the interests of the parties’ government stakeholders cannot be adequately reconciled with each other or with the objectives that BAE Systems and EADS established for the merger,” the companies said in a statement.

The proposed merger between Britain’s BAE and Franco-German EADS, the parent of Airbus, would have created a company with a market value just shy of Boeing’s.

But from the start, investors were skeptical about the deal because of the political disagreements. All three governments had to approve the deal for it to go ahead.

“It’s not up to me to regret or rejoice,” French President Francois Hollande said. “The French state as shareholder made known a certain number of arguments, of conditions. Our German friends had a certain number of criteria that were important to them. The British did the same. And the companies came to their conclusion.”

The companies confirmed the end of their discussions just hours before a deadline on whether to go ahead with the merger, ask for more time or call it off.

The chief executives of both companies had emphasized that the merger was sought not out of necessity, but in the hope of leapfrogging Boeing to the number one spot.

A number of concerns were instantly raised, including the scale and location of any job cuts. Questions were also raised about what the deal would do to the delicate balance that Germany and France have achieved in EADS after years of bickering.

German officials never appeared keen on the deal, preferring EADS to stay the way it was.

The British government was wary about what the prospective deal would do to BAE’s big business dealings with the United States, as well as the scale of the involvement of other governments in the combined entity’s affairs. If the new entity was perceived as state-owned, it could affect its ability to vie for contracts in the U.S. and Asia.

BAE’s biggest shareholder, Invesco Perpetual, which owns more than 13 percent of the group, also relayed its concerns that the merger could threaten BAE’s U.S. defense contracts. BAE is a central lynchpin of the commercial relationship between the United States and the United Kingdom.

In the end, these objections proved too difficult to solve, derailing a deal that would have created a company with annual sales of around $90 billion and a combined global workforce in excess of 220,000.

“That government disagreements killed this deal carries a lesson for consolidation of the European defence market as a whole,” said Guy Anderson, a defense industry analyst at IHS Jane’s. “Meshing the interests of investors and governments and bringing together state-owned, privately-owned and quasi-state owned corporations together will prove to be a Herculean task.”

France is the only government that owns a direct stake in either of the two companies, but Germany has long held sway in EADS via shares held by automaker Daimler and private and public banks. Berlin was arguing for a slice of its own in the new company in order to maintain that historic role.

The deal also didn’t sit well with French conglomerate Lagardere, which owns a 7.5 percent stake in EADS. Lagardere’s CEO, who is also chairman of EADS itself, said this month that the merger did not create value.

Tom Enders, the chief executive of EADS, and his counterpart at BAE, Ian King, both expressed disappointment at the outcome.

“It is, of course, a pity we didn’t succeed but I’m glad we tried,” said Enders.

Analysts believe that the collapse of the merger would leave BAE more vulnerable in the face of major cuts in U.S. and U.K. defense spending. That’s not the case for EADS, which is expected to continue to have a good revenue stream from its commercial aircraft businesses.

BAE will have to “evolve its business model to be effective in a different climate in the future, that’s a challenge for the management team going forward,” British Defense Secretary Philip Hammond admitted.

EADS shares rose on the news the merger was off, trading 4.5 percent higher in late afternoon in Paris. BAE shares recovered earlier losses to trade flat.

 




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


 
 

 

Headlines October 24, 2014

News: U.S., South Korea delay transfer of wartime control - The U.S. and South Korea have delayed transferring wartime operational control of allied forces by taking on a “conditions-based approach” and scrapping the previously set deadline of 2015.   Business: Exclusive: Lockheed, Pentagon reach $4 billion deal for more F-35 jets - Lockheed Martin and U.S. defense...
 
 

News Briefs October 24, 2014

French moving troops toward Libyan border A top French military official says the country is moving troops toward the Libyan border within weeks and, along with U.S. intelligence, is monitoring al Qaeda arms shipments to Africa’s Sahel region. A French base will go up within weeks in a desert outpost just a hundred kilometers (60...
 
 
Navy photograph

Navy to commission submarine North Dakota

Navy photograph The PCU North Dakota (SSN 784) during bravo sea trials. The crew performed exceptionally well on both alpha and bravo sea trials. The submarine North Dakota is the 11th ship of the Virginia class, the first U.S....
 

 

Boeing announces SF Airlines order for Boeing converted freighters

Boeing announced Oct. 23 that SF Airlines has placed an order for an undisclosed number of 767-300ER passenger-to-freighter conversions (Boeing Converted Freighters). SF Airlines, a subsidiary of Shenzhen, China-based delivery services company SF Express, will accept its first redelivered 767 in the second half of 2015. “SF Express aims to become China’s most respected and...
 
 
LM-C130

Another Super Herc Little Rock Rollin’

  Lockheed Martin delivered another C-130J Super Hercules to the 61st Airlift Squadron at Little Rock Air Force Base, Ark., Oct. 23. Little Rock AFB’s new C-130J was ferried from the Lockheed Martin Aeronautics facility ...
 
 

United Technologies beats third quarter profit expectations

United Technologies Corp. Oct. 23 reported third-quarter profit of $1.85 billion as sales increased across all its businesses and the aerospace giant reported favorable tax settlements. The Hartford, Conn.,-based company said it had profit of $2.04 per share and earnings, adjusted for non-recurring gains, came to $1.82 per share. The results topped Wall Street expectations,...
 




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>