British arms manufacturer BAE Systems and European planemaker EADS said on Wednesday they are in merger talks to create a global aerospace and defense leader that would better rival US giant Boeing.
“BAE Systems PLC and EADS confirm that they are in discussions regarding a possible combination of their businesses,” the companies said in a joint statement that confirmed feverish market speculation.
The talks envisaged BAE Systems owning 40 percent of the enlarged group, with EADS holding a majority 60 percent stake.
“The potential combination would create a world class international aerospace, defence and security group with substantial centres of manufacturing and technology excellence in France, Germany, Spain, the UK and the USA,” it added.
The new group would manufacture products ranging from Airbus passenger jets and military transporters to Challenger tanks, Tornado jet fighters and aircraft carriers. It would have a unified board and management structure with identical boards and executive committees at each of BAE and EADS.
“This potential combination would be implemented through the creation of a dual listed company structure, under which both companies would operate as one group by means of equalisation and other agreements but would be separately listed on their existing exchanges,” the statement added.
The two groups have a history of collaborating. They are already partners in joint ventures including the Eurofighter project and MBDA missile systems.
BAE is an expert in the field of defense, security and military, whereas most of EADS’ work is in the commercial sector with its Airbus jet division.
A merger would help EADS make headway in the US, which until now it has struggled to do, Guy Anderson, senior principal analyst at IHS Jane’s Defence Industry said.
“BAE systems now is far bigger in the US than it is in Europe” he said.
In Washington, Boeing CEO Jim McNerney said on Wednesday they saw no threat from the planned merger.
“I have a pretty deep and abiding faith in our company’s strength, okay, so I don’t see this as something that is going to threaten us fundamentally,” he said.
“I think this may be a matter of, from an EADS standpoint, maybe some increased US market access” because of BAE’s presence in the US, he said.
BAE and EADS said they had agreed to ringfence certain defense activities, especially in the US.
“Under the transaction structure being discussed ... BAE Systems and EADS envisage that certain of their defence activities would be ringfenced with governance arrangements appropriate to their strategic and national security importance, particularly in the USA, given the importance of that market to the enlarged group,” the statement added.
News of the proposed deal, which remains subject to shareholder approvals, sent BAE shares surging, but EADS stock dived.
BAE shares rocketed 7.39 percent to ￡3.53 on London’s FTSE 100, which finished down 0.17 percent at 5,782.08 points. In Paris, EADS stock sank 5.63 percent to 28 euros on the CAC 40, which ended up 0.18 percent at 3,543.79 points.