Merger talks between EADS and BAE have entered an “advanced” phase

Officials from the British defence firm BAE Systems announced yesterday that merger talks between them and representatives from the European Aeronautic Defence and Space Company (EADS) have entered an advanced phase.

According to the announcement made by the BAE officials, the current shareholders of the firm will own 40% of the combined group if the merger goes through. EADS shareholders will own the remaining 60%. The news haven’t been well received among the British political circles, with the conservative newspaper Daily Mail terming the merger proposal as a tactic used by the French and German firms to gain control over another one of the British corporations.

BAE Systems is the Britain’s biggest private contractor in the defence sector, and also ranks the first among the defence exporters from UK. The company was established on 30th November 1999, as a result of merger by two of UK’s top defence firms, the aircraft manufacturer British Aerospace (BAe) and the defence arm of the General Electric (GEC), Marconi Electronic Systems (MES).

The subsidiaries which are fully or partially owned by the BAE Systems include aircraft manufacturers such as A.V. Roe and Company, Supermarine, De Havilland, and the British Aircraft Corporation. The firm also fully owns British shipbuilders such as the Cumbria based Vickers Shipbuilding and Engineering, and the Scotland based Yarrow Shipbuilders. Recently the firm had also acquired some of the American defence companies, such as the United Defence Industries and the Armour Holdings Inc (now BAE Systems Mobility & Protection Systems).

On the other hand, EADS is partially owned by the French company Société de Gestion de l’Aéronautique, de la Défense et de l’Espace (SOGEADE), the German automotive corporation Daimler, and the Spanish state owned company Sociedad Estatal de Participaciones Industriales (SEPI). When the news about the proposed merger was announced, the shares of BAE Systems went up by some 11% in the FTSE, while those of the EADS fell by as much as 6% in the CAC.

Currently EADS is having a market capitalization of some € 22.9 billion, while that of the BAE was measured at € 14.70 billion, roughly matching with the proposed 60:40 split. According to financial experts, EADS is also considering a dividend payment of around € 0.30 per share for its shareholders prior to the merger.