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BAE Systems plc and EADS: Why the merger failed and what happened next

Published: July 2013 · Publisher: MarketLine
In September 2012, a merger was being discussed between BAE System and The European Aeronautic Defence and Space Company (EADS). The new company would have had combined revenues of over $100bn in 2012.
Report Type Case Studies
Language English
Format Electronic (PDF)
Pages25
Frequency Updated Annually
Availability Will be emailed within 1 business day
Reference No. 0109-6705
Price € 369,00
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Introduction

In September 2012, a merger was being discussed between BAE System and The European Aeronautic Defence and Space Company (EADS). The new company would have had combined revenues of over $100bn in 2012. The merger was effectively terminated in October 2012 following European governments failing to agree on the new company, which prompted uncertainty about the future of the companies.

Features and benefits

* The publisher's Case Studies describe topics such as innovative products, business models, and significant company acquisitions.
* Fact-based and presented in an accessible style, they explain the rationale of commercial decisions and illustrate wider market and economic trends

Highlights

The merger would have prompted consolidation in the European defense industry and created a company with the size and potential to challenge the Boeing Company. Both companies would benefit from the merger; EADS would strengthen its defense arm to hedge against the civilian aviation market, whilst BAE would diversifying to stabilize revenue.
The merger was effectively killed off in October 2012 by the refusal of the German government to ratify the deal amid political deadlock, although the French and UK governments were preparing to compromise. The merger also would have been suspect to governments external of the EU, particularly the US given BAE’s eminence in its defense contracting.
After merger talks were cancelled, both companies' futures were uncertain. Governments and the companies are hesitant to declare the move dead. Although EADS enjoyed success in 2012 with Airbus, the company still faces challenges with its defense businesses. BAE remains in an adverse situation, but there is progress in international demand.

Your key questions answered

* What was the logic behind the BAE Systems and EADS merger?
* Why did the BAE Systems EADS merger fail?
* What happened to BAE Systems and EADS after the merger's cancellation?
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OVERVIEW
Catalyst
Summary
BAE AND EADS: THE MERGER’S RATIONALE
The merger would have initiated industrial consolidation
Fragmentation in the European defense industry
Declining European defense budgets
The Competitive advantages of a merger
BAE EADS merger would significantly lower production costs
Improvement in international competitiveness
Diversifying interests to ensure income stability
History of successful cooperation between BAE and EADS
Hopes for diluted political input
WHY THE BAE AND EADS MERGER FAILED
Political deadlock
Clashes in interests for UK, France and Germany
BAE customers beyond Europe
Previous failed European joint programs
Fourth generation fighters
Shareholder opposition
BAE: Invesco’s opposition
EADS: Venturing into a dwindling market
Competition issues
WHAT HAPPENED NEXT
EADS: Flying High
The civilian aviation boom
Dilution of government shares
Challenges
BAE Systems: continuing the course
Competing well, but in shrinking markets
Growth in export markets
Rationalization efforts
Could the merger be revived?
Implications for the European industry
CONCLUSIONS
Politics delays a necessary merger for the European industry
APPENDIX
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Copyright © FriedlNet. You may share using our tools Please don't cut content from FriedlNet and redistribute by email or post to the web.