Further to the recent increase in jet-maker BAE Systems’ share price, BAE Systems and European aerospace firm EADS have confirmed that they are discussing a merger.
Early discussions between the parties have led to a package where BAE Systems shareholders would own 40% and EADS shareholders 60% of the enlarged group.
There would be a unified board and management structure with identical boards and executive committees at each of BAE Systems, which makes the F-35 fighter jets and EADS, which owns Airbus.
BAE Systems and EADS have a long history of collaboration and are currently partners in a number of important projects, including the Eurofighter and MBDA joint ventures. The potential combination would create an aerospace, defence and security group with manufacturing and technology centres in France, Germany, Spain, the UK and the USA.
Discussions have been initiated with a range of governments about the implications of the potential transaction and the companies envisage that some of their defence activities would be ringfenced with governance arrangements appropriate to their strategic and national security importance, particularly in the USA.
In addition, subject to receiving appropriate shareholder approvals, the parties envisage issuing special shares in BAE Systems and EADS to each of the French, German and UK governments to replace the existing UK government share in BAE Systems and the stakeholder concert party arrangements in EADS.
A merger would result in cost savings from procurement and sourcing efficiencies available to the enlarged group.