EADS-BAE proposed consortium to be the largest ever merger

[arp2041]

Eurofighter under construction at Manching, Germany

M777 ultra-light artillery gun


It will be one the largest ever acts of consolidation in the arms and aerospace industry ever, certainly the biggest in Europe. The under-discussion merger of defence and aerospace giants EADS and BAE Systems, in discussions at the highest levels since earlier this year, has a distinct Indian connection. It is widely believed that Eurofighter's runner-up loss in the Indian medium multi-role combat aircraft (MMRCA) competition presented not just phenomenal disappointment for Eurofighter—a programme administered by EADS and BAE Systems together—but also a larger inflection point. Focusing much energy on the twin American campaigns had failed to push the Typhoon across the finish line, trumped as it was by its own European cousin, the French Rafale—an airplane it is similar to in many respects. While actual trigger may have been the MMRCA loss, the coming together of the two massive firms has also been driven by a perceived need to mount a single corporate entity to battle US firm Boeing. Synergies would also allow both firms to rationalise operations in the face of a global dip in defence expenditure. India, as it turns out, is an exception, not really a rule in that sense.

One of the theories that insiders in both EADS and BAE had for the MMRCA loss was that it wasn't led by the British team, which had decades of experience doing aerospace business with India. The much more inexperienced German component of the consortium, some in both companies say, may not have known precisely how to handle the programme. This was only one example of disparate corporate entities perhaps not taking the best decision available—something that may be streamlined with a merger. The complexity of both companies, though, would still need a phenomenal degree of synergy, considering that the EADS and BAE have overlapping interests and business units. For instance, both companies manufacture trainer aircraft, UAVs and other advanced systems for the civil sphere. The merged entity would, however, be perhaps the most integrated weapons company in the world—making everything from warships, to aircraft, UAVs, helicopters and spacecraft, to land systems, electronics, military vehicles, missiles and artillery. India has procurement or joint development interests in virtually every one of those areas.

Both EADS and BAE Systems have had a fairly mixed bag in the country, even if analysts find it tempting to paint most things now with the MMRCA brush. BAE Systems has a successful Hawk programme currently on with HAL—it has just been handed an RFP for 20 more Hawks for the IAF's revamped aerobatics team—and is in line to receive close to a billion dollar deal for 145 M777 ultra-light artillery guns. Several other competitions, both in defence and civil, shore up a healthy market outlook for a company that has, across several avatars, been an old hand in dealing with India. EADS, on the other hand, has faced a string of disappointments in India, certainly as far as defence is concerned. While the Typhoon defeat stung badly, it was also made to endure two big-ticket contract aborts at the last moment—the first attempt to procure 197 light reconnaissance helicopters and the first attempt to procure six new mid-air refuelling tankers. The company waits eagerly for the outcome of the sophomore attempt on both contracts.

A corporate coming together of the two companies would make the resulting entity a formidable one, even if one is to consider how wrong mergers in the arms industry can actually go. In India, an EADS-BAE entity would be in a position to be a pan-industry vendor. And considering that India happens to be one of the few countries that doesn't appear to be in a position to slash its security spending, New Delhi could take primacy of place in the attention that the new company pays to international customers.


EADS BAE proposed consortium to be the largest ever merger - SP's Naval Forces

 

[Tshering22]

This merger may create a few problems:

- EADS is the brainchild of French and German governments while BAE is a public listed company in UK.

- Under EADS, UK's prime weapons manufacturer will be tied down to common corporate rules that may essentially not be beneficial for UK's stakeholders while it may be serving French and German interests.

- UK likes to distance itself from EU on many strategic aspects and prefers to be counted with Uncle Sam. This would undo all that.


EADS will become too big if BAE joins in.

 

[VCheng]

More on this story:

This particular merger may have important implications for the world's defence industry:

from: EADS and BAE Systems: Like Unilever, but with fighter jets and missiles | The Economist

EADS and BAE Systems
Like Unilever, but with fighter jets and missiles
A merger plan by two European giants may set off a wave of consolidation in the defence industry
Sep 15th 2012 | from the print edition

In the 1990s there was a grand plan to combine many of Europe’s largest defence and aerospace companies into a giant capable of competing with American rivals. In the end, British Aerospace—now called BAE Systems—opted out of the plan. It sold most of its civil-aerospace side to EADS, the combined group formed by the rest, to concentrate on the military market. However, it emerged on September 12th that talks are under way about BAE joining forces with EADS after all. If the deal overcomes some considerable obstacles, the resulting firm will at last have the sort of firepower that EADS’s founders had in mind—and be a serious global competitor to America’s mighty Boeing.

EADS’s Airbus division is already Boeing’s main rival in the business of making commercial airliners. It also has a sizeable military arm. But weak defence spending, at a time when airlines are placing huge orders for jets, means that around three-quarters of EADS’s turnover now comes from its civilian part. Whereas other defence groups are looking for ways to move towards the civil side, expecting many more years of government spending cuts, EADS’s bosses have an eye on the longer term, and take a different view. They assume that defence spending will pick up eventually, and want to build their firm’s military side to about half of turnover. More big, long-term defence contracts would provide a useful stabiliser against the ups and downs of the civil-aircraft market. Merging with BAE achieves EADS’s aims in one great leap.

The deal is not yet done. BAE rushed out a statement after news of the talks apparently leaked. It has not yet been decided who will take the top jobs at the combined group. EADS is hemmed in by a shareholders’ pact between France, Germany and Spain, which will have to be unpicked. The British government’s “golden share” in privatised BAE gives it a veto on changes of control. And other governments and regulators will have their say too, especially in places like America and Saudi Arabia where both firms run sensitive military businesses.

The plan is to create a dual-listed company, along the lines of Unilever, an Anglo-Dutch maker of food and detergents, in which the two firms keep their separate stockmarket listings but pool all of their operational businesses and run them as one. EADS also hopes that the merger will liberate it from government interference, leaving it as free to decide its own fate as Unilever is. The main purpose of the EADS shareholders’ pact was to preserve a balance of power between France and Germany, which has in practice meant the Germans doing their utmost to keep up with France in the meddling stakes.

Although the French and Spanish governments own shares in EADS, for historic reasons Germany’s stake of 15% (with 22.4% of the voting rights) is held by Daimler, a private-sector carmaker. Daimler wants to sell part of the stake, and the German government has been negotiating to buy a 7.5% holding. If the merger proceeds, with EADS representing 60% of the combined group, the 15% stake owned by the French government will fall to around 9%, Spain’s 5.5% will become 3.2% and the German government may not go ahead with its purchase after all.

Pleasing Uncle Sam

The Pentagon, a big customer of the combined group, will no doubt insist that its most sensitive defence contracts are ring-fenced and run by security-cleared Americans, as BAE’s existing work there is now. It may welcome having a stronger rival to Boeing and other big American prime contractors on the largest defence projects. But American politicians are bound to kick up a stink about any contract going to a firm that has even a vestigial shareholding by foreign governments, albeit allies.

In many respects EADS and BAE are complementary: EADS has the substantial civilian side BAE now lacks, and a healthy helicopter business. Besides wanting to rebalance towards defence, EADS aims to shift from manufacturing towards services and maintenance, areas in which BAE is strong. In the emerging fields of cybersecurity and unmanned aircraft, combining both sides’ businesses will build beefier contenders. But Zafar Khan, a defence analyst at Société Générale, a bank, sees many areas in which the overlap may be too great, attracting the attention of competition authorities. For example, besides both firms being members of the consortium that builds the Eurofighter (see picture above), EADS is a big shareholder in Dassault, manufacturer of the rival Rafale jet.

For the merger to go ahead, countless parties will need to be convinced, not least the shareholders of both firms. Mr Khan thinks, for example, that BAE’s share of the combined group should be closer to 35% than the proposed 40%—and EADS’s investors may agree. Nevertheless, as Boeing’s boss, Jim McNerney, said on hearing of the proposal, it is likely to start a wave of consolidation in the defence industry. Guy Anderson of IHS Jane’s, a defence and aviation consultancy, reckons that in particular the European firms left out of the deal, such as Thales of France and Finmeccanica of Italy, will be acutely worried about being left behind. A new age of military alliances looks in prospect.

from the print edition | Business

 

[Jango]

This would be a very big development. EADS and BAE merger would give immense competition to Lockheed Martin IMO.

 

[Jango]

EADS, BAE call off world's biggest arms merger


(Reuters) - EADS and BAE Systems called off the world's largest defense and aviation merger on Wednesday, and pinned the blame on Germany for wrecking the $45 billion deal.

BAE said it had become clear that the interests of the French, British and German governments could not be reconciled with each other or with the objectives that BAE and EADS established for the merger.

"BAE Systems and EADS have therefore decided it is in the best interests of their companies and shareholders to terminate the discussions and to continue to focus on delivering their respective strategies," BAE said in a statement.

BAE is a private British company, and its biggest customer is the U.S. military, accounting for nearly half its revenue. EADS, the Franco-German maker of Airbus planes, has a more complicated share structure, giving large influence to German and French industrial groups and the French state.

The merger hinged on the role of both the French and German governments in the combined firm. In the end, it was Berlin, rather than Paris, that proved the problem.

When asked if he had encountered more problems with the German than the French government, BAE CEO Ian King said: "That would be an accurate representation."

"We had clear red lines that we were not willing to go beyond relative to engagement and involvement of governments," King told reporters in London.

"If that was going to impinge on our ability to commercially run this new merged organization, and support and develop our existing business, then we wouldn't go to that point, and that is where we are today."

EADS said it was still not clear why Germany had objected.

"No firm reason has been given for the German opposition," an EADS spokesman said. "I suggest you speak to them."

NATIONAL SECURITY

Securing such an enormous and complicated cross-border deal in a sector where commercial considerations are typically trumped by political, economic and national security concerns was always going to be desperately difficult.

"It is, of course, a pity we didn't succeed, but I'm glad we tried. I'm sure there will be other challenges we'll tackle together in the future," said Tom Enders, EADS chief executive.

The companies had until 1600 GMT on Wednesday to declare their intentions and either scrap the merger, ask British regulators for more time or finalize their plans to create a group employing nearly a quarter of a million people that could better compete with U.S. rival Boeing.

A source close to the talks said the companies had accommodated all of Berlin's requests and were baffled as to why Chancellor Angela Merkel's government blocked the deal anyway.

"Germany blocked the deal, although all demands from the German side were met," the source said. "Top German negotiator Lars-Hendrik Roeller was the one who formulated all demands and said no in the end."

Roeller is Merkel's senior economic adviser.

EADS, BAE call off world's biggest arms merger | Reuters

The French were to be expected to be the trouble point, but it proved to be the Germans!!

 

[Safriz]

The shrewd Brits dont like the idea..Many say their nuclear secrets will go in foreign hands..
Their entire Nuclear submarine fleet was Constructed and currently maintained by BAE systems.
Nuclear subs are the only Platform currently being used for British Nuclear deterrence..UK got no Land or air based Nuclear missiles...
Giving BAE to Europe will mean leaving their nuclear detrrants in the hands of Foreign countries,although Europeans..

 

[Kompromat]

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