Setting the record straight on the BAE Systems-EADS merger talks

Posted on 1 Oct 2012 by The Manufacturer

The below letter from Ian King, chief executive BAE Systems and Tom Enders, chief executive EADS was published in the Financial Times, Die Süddeutsche Zeitung and Le Monde yesterday.

It is more than two weeks since news emerged that BAE Systems and EADS are considering a combination which would create a world class defence, aerospace and security group. Since then, much has been said on the subject. It has been analysed and interrogated from every conceivable angle by politicians, pundits and competitors alike, not least in the columns of this newspaper [the Financial Times Die Süddeutsche Zeitung and Le Monde].

Inevitably, as our discussions with several governments continue, we are not yet in a position to tell the full story and explain the significant benefits of the combination to our shareholders, employees, and other stakeholders who rightfully have an interest in the outcome of our discussions.

But it is important to correct some myths and misconceptions.

The first thing to say is that this is a combination borne out of opportunity, not necessity. BAE Systems and EADS are both strong businesses with clearly defined strategies that have enabled them to make progress in the last five years, and which would take them forward as independent companies.

But there comes a time when it is right to seize the moment and to create something that is even stronger and better. We believe that time is now. With the necessary political will and support, management determination, and proper governance, BAE Systems and EADS can produce a whole that is greater than the sum of its parts. Together, we would become a business with a global footprint, and a wider customer base. We would be able better to ride the cycles of civil aviation demand and defence spending. And we would be a business with the scale and stability to invest more in R&D, and a force for greater competition and growth. All of this would deliver tangible benefits to our customers in each of the defence, aerospace and security worlds.

The rationale that drives this transaction is growth, not contraction. BAE Systems and EADS operate in complementary markets. Clearly, there will be scope for efficiency savings when two companies of our size come together, but great benefit will derive from our ability to exploit new business opportunities. That has to be good for jobs and economic prosperity in the long term. It would also mean that we can ensure our key markets stay at the cutting edge of technological development.

We are working hard with our respective governments on this combination. As we said in our initial announcement, we are very focused on agreeing arrangements which protect the strategic and national security interests of the governments with which we work, particularly in France, Germany, the United Kingdom and the United States, given the importance of those markets to the combined group. We propose to replace the shareholder arrangements which currently give Daimler, Lagardère and the French state joint control over EADS.

That would mean creating a business with governance structures which would enable it to operate in a normal commercial manner and which confers the same rights on all shareholders, large and small.

We believe that a combination on these terms would provide the best strategic opportunity for our organisations, with world class management, technology, investment capability and customer access, to the benefit of all our stakeholders.