Lawmakers looking at BAE-EADS merger plan

Oct. 3, 2012 at 11:34 AM
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LONDON, Oct. 3 (UPI) -- The proposed merger of aerospace and defense conglomerates BAE Systems PLC of Britain and the Netherlands' EADS NV is coming under government scrutiny.

The Defense Committee of Britain's House of Commons is to begin an inquiry into the proposed joining of the companies and the possible effect such a move would have on the country's defense industry and national defense relationships with other countries.

"BAE Systems and EADS operate highly capable and sensitive defense businesses in many countries including the U.K., the USA, France, Germany, Spain, Sweden, South Africa, India, Saudi Arabia and Australia," the committee said in announcing its inquiry.

"The merger of two such large defense contractors would have a significant and strategic impact on their relationships with U.K., U.S. and European governments. It could also radically alter the defense industrial base in these countries.

"The inquiry will examine the likely impact of such a merger on U.K. defense, including the protection of sovereign capabilities and the nature of the defense industrial base."

It would seem logical that the interests and scope of issues to be examined by the parliamentary committee match those of other government and legislators, who would most likely conduct their own hearings into the merger proposal.

"BAE Systems and EADS believe that the potential combination of their two businesses offers the prospect of significant benefits for customers and shareholders of both companies," BAE Systems said in a news release that confirmed industry and stock market speculation that a merger was in the works.

"These benefits include cost savings, such as from procurement and sourcing efficiencies available to the enlarged group, and substantial new business opportunities."

But, it said, "there can be no certainty that the discussions will ultimately lead to a transaction."

Any final merger agreement, it noted, would need regulatory approval by governments and approval by their respective stockholders and others.

Two possible obstacles have appeared.

Lagardere SCA, a French multimedia conglomerate and a controlling shareholder in EADS, made it clear it is opposed to the deal as it stands.

"Despite its alleged industrial and strategic potential, this project has not demonstrated that it will create value for EADS," Lagardere said Monday. "Lagardere considers, at this stage, that the conditions of the rapprochement between EADS and BAE are unsatisfactory.

"Consequently, Lagardere requests the executive management of EADS to begin, without delay, the indispensable review of the EADS and BAE merger project, so as to better take into account the overall interests of the French controlling shareholders of EADS."

EADS is a pan-European organization. Its companies include Airbus, Astrium, Cassidian and Eurocopter and their subsidiaries around the world.

The merger plan as it stands calls for an enlarged business group with a unified management structure, identical boards of directors and executive committees. EADS shareholders would own 60 percent of the new group, while BAE shareholders would own the remainder.

Special shares in the new group would be issued to the governments of France, Germany and Britain "to replace the existing U.K. government share in BAE Systems and the stakeholder concert party arrangements in EADS."

EADS' stakeholder arrangement includes the governments of Germany and France.

Interested non-shareholder parties in any merger are the employees of both and their unions.

"We have been in intense dialogue with both BAE Systems and EADS and understand the industrial logic behind the merger proposal," said Ian Waddell, the national officer for aerospace and shipbuilding of the British labor union Unite.

"Both partners are saying that the new company will be an engine for growth and will be stronger than its constituent parts. If that is the case, then they should put to rest any uncertainty by giving a guarantee that no jobs will be lost as a result of the merger."

Unite is Britain's largest union and wants assurances about the future of BAE and EADS plants in the country.

"We had a constructive meeting with Michael Fallon (minister of state at the Department for Business, Innovation and Skills)." Waddell said. "The U.K. government has a 'golden share' in BAE Systems and a regulatory obligation. We argued that the government must do all it can to ensure that the U.K. jobs and our long-term economic interests are protected in the merger."

The Defense Committee of Britain's House of Commons has requested written and oral submissions for its inquiry. Among issues it intends to examine: The effects of any merger or effective complex takeover arrangement on the current U.K. defense acquisition policies; its impact on joint venture defense exports; continuing access to U.S. technology; relationships with European allies given EADS arrangements with some European governments; and the merger's effect on the industrial base of the country.

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