BAe nears pounds 15bn arms merger

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BRITISH AEROSPACE was last night thought to be close to agreeing a pounds 15bn merger with Marconi, the defence electronics arm of GEC, in a deal that would kick-start the restructuring of Europe's arms industry.

The two companies were briefing Government officials and a deal could be announced as early as next week. A merger would create one of the biggest integrated aerospace and defence groups in Europe with sales of $23bn.

Meanwhile, DaimlerChrsyler Aerospace of Germany, which was close to a merger with BAe before Christmas, was in talks with the French defence contractors, Thomson CSF and Lagardere about joining forces.

A source close to the German company said: "Meetings have been taking place at the highest level, both between the companies and the German and French governments."

A merger with Thomson would create a vertically-integrated group spanning defence electronics and platforms, similar to a combined BAe-Marconi grouping.

GEC, led by Lord Simpson, says it has been in negotiations with French and US defence contractors as well as BAe about a merger. However, some analysts believe these talks were always a negotiating ploy to obtain as high a price as possible for Marconi in an eventual merger with BAe.

BAe is valued at pounds 9bn while Marconi is worth about pounds 6bn but it is said that Lord Simpson was pressing for the combined entity to be split 50:50 between the two companies.

"It looks like the end-game is near," said one insider, referring to the jockeying for position and incessant speculation there has been for the last two months about who would link up who.

But some advisers remain sceptical, believing that the entire restructuring process could fall flat because of arguments about valuation and control, leaving giant US contractors such as Lockheed Martin and Raytheon to divide and rule.

German industry sources said that if there was a deal between BAe and Marconi it was unlikely there would be a follow-up Anglo-German merger.

However, analysts said the opportunity to acquire Marconi after years of being rebuffed was likely to prove irresistible to BAe, even if it risked alienating Dasa. "The hope will be that its German partner in Eurofighter and the Airbus consortium will come round to a multilateral deal," said one analyst.