BAE Systems Plc, Europe's biggest weapons company, told the UK government it plans to merge with either Lockheed Martin Corp or Boeing Co later this year, the Telegraph reported, citing unidentified BAE executives.
London-based BAE has in recent weeks discussed its plans with UK Trade and Industry Secretary Patricia Hewitt and Defense Secretary Geoff Hoon, the UK newspaper said on its Web site.
Company spokesman Phil Soucy declined to confirm the report. While BAE is seeking a "trans-Atlantic link," it has no "preconceived notion" of how that will happen, he told Bloomberg News.
BAE "are an ideal takeover candidate," said Jim Eckes, managing director of Indoswiss Aviation in Bangkok. "It would probably be an even better fit for Lockheed Martin than Boeing. Lockheed Martin has been going on a steady cycle of expansion over the years."
Chicago-based Boeing, with a market value of US$28 billion, is said to be the preferred partner of BAE, itself worth about US$7.5 billion, the Telegraph said. BAE owns 20 percent of Airbus SAS, which is competing with Boeing for customers as airlines face the industry's worst-ever slump. Lockheed Martin is the largest US defense contractor and Boeing is the world's No. 1 airplane maker.
BAE's ownership of one-fifth of Airbus "would be an issue" should the company decide to combine with Boeing, Indoswiss's Eckes said.
BAE shares on Friday rose ?0.12 to ?1.45 in London after Deutsche Bank analyst Ben Fidler reiterated his 12-month price target of ?1.50 and said BAE was actively pursuing a merger with a US aerospace company, following a meeting with company executives.
"There seems to be a greater degree of aggression in pursuing a merger with a US company, though we don't think it will be Boeing," said Fidler in a phone interview on Friday.
BAE "has to grow in the US," the Telegraph quoted the unidentified executive as saying. "That is where the market is and the money is. A deal could quite easily happen sooner rather than later."
The company last week rejected a merger approach from Thales SA, Europe's biggest provider of military electronics, the Observer reported on its Web site.
Thales chief executive Denis Ranque approached BAE chief executive Mike Turner at an informal breakfast meeting at London's Duke's Hotel, the Observer said. That meeting and the rejected offer were confirmed by BAE spokesman Soucy.
"He made a casual offer, I turned him down, and that was the end of it," the newspaper quoted Turner as saying.
Phil Condit, Boeing's chief executive, said on April 23 he wants to create business ventures with European companies and has considered a merger with BAE, although no deal was imminent.
Boeing shares rose 3.5 percent Friday to US$34.86, the highest closing price since Oct. 1. Lockheed shares gained 2.1 percent, the biggest advance in five weeks, to US$46.41.
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