BAE strives to calm its backers after deal fails

  • @BawdenTom

BAE Systems launched a charm offensive yesterday as the defence giant promised to hold meetings with investors to discuss its strategy following the collapse of its proposed £30bn merger with EADS.

Investors are looking for reassurance that BAE can prosper as an independent defence company, as key customers such as Britain and the US drastically cut military budgets. However, BAE's chief executive, Ian King, and chairman Dick Olver have their work cut out, with some analysts and investors questioning whether they should keep their jobs in the wake of the failed tie-up with EADS.

The moves came as BAE warned in a trading statement that it still faces uncertainty in its major US market as budgets are cut. It is also depending on a lucrative deal – worth more than £7bn – to upgrade Typhoon jets in Saudi Arabia to support its growth.

"BAE really needs the cash from renegotiating Typhoon pricing with Saudi Arabia," Sash Tusa, an analyst at Echelon, said yesterday. "Without it, total gearing remains high to 2015 [and] we see a decreased possibility of share buybacks."

BAE and EADS abandoned merger talks on Wednesday after the British, German and French governments failed to agree on how the resulting entity would be run. BAE's decision to meet with investors emerged after the group took out newspaper adverts to reassure staff, customers, shareholders and suppliers that the company was right to try the merger, and would be all right without it.

"We did not underestimate the challenges in bringing this merger to fruition and nor do we regret having attempted to make this strategic opportunity happen... BAE is a strong independent company with a clear strategy and an excellent future as a standalone business," the advert said.

One of BAE's top shareholders said yesterday: "We want to sit down with the company to talk through exactly why they wanted to do this deal and now that it won't be going ahead, what are the plans. They implied this was a strategic necessity, and now they say this setback is fine and that they can carry on as normal. Well, which is it?"