d EADS, EUROPE’S largest aerospace company, and BAE Systems, its largest defence company, are in talks about a potential tie-up, the British group has said.
The pair would create a dual-listed structure, under which each would operate as one group, BAE said, but each group would remain separately listed on existing exchanges.
A combined group would have a joint market capitalisation of some $48 billion, based on yesterday’s closing prices, and would represent a formidable force in the defence and aerospace industries, serving customers from Washington to Riyadh.
BAE shareholders would own 40 per cent of the enlarged group and EADS’s 60 per cent. The combined group would have a unified board and management structure.
BAE said the groups envisaged issuing “special shares” to the French and German governments to replace their holdings in EADS and to the British government to replace its stake in BAE.
EADS confirmed the talks.
“The possible combination is subject, amongst other things, to the approval of the board of EADS and there can be no certainty that these discussions will lead to a transaction,” it said.
The deal would need the approval of Berlin, Paris and particularly London. It would also need the approval of the US, BAE’s biggest customer. “Discussions have therefore been initiated with a range of governments about the implications of the potential transaction,” BAE said. Some of the groups’ respective defence contracts would be “ringfenced”, it added.
Both groups were said to have consulted closely with governments in Britain, Germany, France and Spain, which is EADS’s third-largest shareholder. The US government had also been informed about the talks, people briefed on the deal said.
Market rumours of deal talks, first reported by Bloomberg, sent BAE’s stock soaring ahead of the announcement yesterday afternoon.
The London shares closed up 10.6 per cent.
People briefed on the deal said one factor driving the talks was the precipitous decline in European defence spending as one government after another launched austerity cuts. This had forced the sector to look at consolidation anew. – Copyright 2012 The Financial Times Limited
