Defence giants in £30bn merger

BAE and EADS set to combine to offer a stronger European challenge to Boeing

The British defence giant BAE Systems is in merger talks with EADS, owner of the plane maker Airbus, to create a £30bn European aerospace and security champion.

The deal was disclosed yesterday as shares in BAE soared 11 per cent to 363.6p. Under the outline terms, BAE shareholders would own 40 per cent of the merged business, with EADS accounting for 60 per cent.

The two already collaborate on the Eurofighter Typhoon and MBDA, a missiles venture, but a merger is designed to better compete with the American plane maker Boeing, as well as boost EADS's sales to the Pentagon, where BAE is a key supplier.

The British Government will need to be convinced. It holds a "golden share" in BAE, allowing it to veto any buyout bids from overseas. The company is a major employer and exporter, and is responsible for much of Britain's defence technology.

In comparison, the French government owns 15 per cent of EADS, with an equivalent German stake held through the car maker Daimler. Special shares would be issued to the three governments as part of the proposal to protect national interests.

BAE has been struggling to define its future strategy as defence spending cuts have forced it to axe jobs. One of its three shipyards in Scotland and Portsmouth are expected to close, and aerospace hubs in Lancashire and Humberside have also shed staff.

Ian King, the chief executive, has a strained relationship with the City that has seen the company's shares slide by a fifth in the last five years.

The dual-listed company is expected to be led by EADS's boss, Tom Enders, and headquartered outside the UK. However, Mr King is expected to be retained to lead an expanded defence and security business based in Britain. Few job losses are predicted.

The disclosure comes at a sensitive time for the Government, which is trying to throw its weight behind manufacturing. Dick Olver, BAE's chairman, sits on the Prime Minister's business advisory council. But the announcement was met with an enthusiastic response on Whitehall, with a leading Shadow Cabinet member describing the move as "very positive".

However, the companies will have to woo the White House and the Pentagon. The combined group is likely to derive just under a quarter of its sales from the US, and, in an election year taking place in the spectre of massive unemployment, US officials will have to be convinced that the move does not represent a threat to its own workforce.

Under the takeover rules, the companies must announce the result of their discussions by 10 October. The terms of the deal will see EADS pay £200m to its shareholders prior to completion of any deal, as BAE usually pays investors a better dividend every year. BAE used to be a shareholder in Airbus, but sold its stake six years ago.

In a statement, BAE said: "BAE Systems and EADS believe that the potential combination … offers the prospect of significant benefits for customers and shareholders of both companies. These benefits include cost savings, such as from procurement and sourcing efficiencies available to the enlarged group, and substantial new business opportunities."

Start your day with The Independent, sign up for daily news emails
Arts and Entertainment
musicOfficial chart could be moved to accommodate Friday international release day
Sport
Wes Brown is sent-off
football
News
i100
Sport
Italy celebrate scoring their second try
six nations
Sport
Glenn Murray celebrates scoring against West Ham
footballWest Ham 1 Crystal Palace 3
Arts and Entertainment
Drake continues to tease ahead of the release of his new album
music
ebooks
ebooksA special investigation by Andy McSmith
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

SThree: HR Benefits Manager

£40000 - £50000 per annum + pro rata: SThree: SThree Group have been well esta...

Recruitment Genius: Office Manager / Financial Services

£30000 - £37000 per annum: Recruitment Genius: Established in 1999, a highly r...

Jemma Gent: Year End Accountant

£250-£300 Day Rate: Jemma Gent: Are you a qualified accountant with strong exp...

Jemma Gent: Management Accountant

£230 - £260 Day Rate: Jemma Gent: Do you want to stamp your footprint in histo...

Day In a Page

Chelsea vs Tottenham: Harry Kane was at Wembley to see Spurs beat the Blues and win the Capital One Cup - now he's their great hope

Harry Kane interview

The striker was at Wembley to see Spurs beat the Blues and win the Capital One Cup - now he's their great hope
The Last Word: For the good of the game: why on earth don’t we leave Fifa?

Michael Calvin's Last Word

For the good of the game: why on earth don’t we leave Fifa?
HIV pill: Scientists hail discovery of 'game-changer' that cuts the risk of infection among gay men by 86%

Scientists hail daily pill that protects against HIV infection

Breakthrough in battle against global scourge – but will the NHS pay for it?
How we must adjust our lifestyles to nature: Welcome to the 'Anthropocene', the human epoch

Time to play God

Welcome to the 'Anthropocene', the human epoch where we may need to redefine nature itself
MacGyver returns, but with a difference: Handyman hero of classic 1980s TV series to be recast as a woman

MacGyver returns, but with a difference

Handyman hero of classic 1980s TV series to be recast as a woman
Tunnel renaissance: Why cities are hiding roads down in the ground

Tunnel renaissance

Why cities are hiding roads underground
'Backstreet Boys - Show 'Em What You're Made Of': An affectionate look at five middle-aged men

Boys to men

The Backstreet Boys might be middle-aged, married and have dodgy knees, but a heartfelt documentary reveals they’re not going gently into pop’s good night
Crufts 2015: Should foreign dogs be allowed to compete?

Crufts 2015

Should foreign dogs be allowed to compete?
10 best projectors

How to make your home cinema more cinematic: 10 best projectors

Want to recreate the big-screen experience in your sitting room? IndyBest sizes up gadgets to form your film-watching
Manchester City 1 Barcelona 2 player ratings: Luis Suarez? Lionel Messi? Joe Hart? Who was the star man?

Manchester City vs Barcelona player ratings

Luis Suarez? Lionel Messi? Joe Hart? Who was the star man at the Etihad?
Arsenal vs Monaco: Monaco - the making of Gunners' manager Arsene Wenger

Monaco: the making of Wenger

Jack Pitt-Brooke speaks to former players and learns the Frenchman’s man-management has always been one of his best skills
Cricket World Cup 2015: Chris Gayle - the West Indies' enigma lives up to his reputation

Chris Gayle: The West Indies' enigma

Some said the game's eternal rebel was washed up. As ever, he proved he writes the scripts by producing a blistering World Cup innings
In Ukraine a dark world of hybrid warfare and murky loyalties prevails

In Ukraine a dark world of hybrid warfare

This war in the shadows has been going on since the fall of Mr Yanukovych
'Birdman' and 'Bullets Over Broadway': Homage or plagiarism?

Homage or plagiarism?

'Birdman' shares much DNA with Woody Allen's 'Bullets Over Broadway'
Broadchurch ends as damp squib not even David Tennant can revive

A damp squib not even David Tennant can revive

Broadchurch, Series 2 finale, review