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."

PROMOTED VIDEO
Voices
Pupils educated at schools like Eton (pictured) are far more likely to succeed in politics and the judiciary, the report found
voices
Arts and Entertainment
Simon Cowell is less than impressed with the Strictly/X Factor scheduling clash
tvSimon Cowell blasts BBC for breaking 'gentlemen's agreement' in scheduling war
News
Orson Welles made Citizen Kane at 25, and battled with Hollywood film studios thereafter
people
News
Brad Pitt and Angelina Jolie reportedly married in secret on Saturday
peopleSpokesperson for couple confirms they tied the knot on Saturday after almost a decade together
Sport
footballAnd Liverpool are happy despite drawing European champions
News
i100
News
ebooksAn evocation of the conflict through the eyes of those who lived through it
Arts and Entertainment
tv
News
i100
Arts and Entertainment
Diana from the Great British Bake Off 2014
tvProducers confirm contestant left because of illness
Arts and Entertainment
Lisa Kudrow, Courtney Cox and Jennifer Anniston reunite for a mini Friends sketch on Jimmy Kimmel Live
tv
Life and Style
fashion

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

Client-Side web developer (JQuery, Javascript, UI, JMX, FIX)

Negotiable: Harrington Starr: Client-Side web developer (JQuery, Javascript, U...

Structured Finance

Highly Competitive Salary: Austen Lloyd: CITY - An excellent new instruction w...

SQL Server Developer

£500 per day: Harrington Starr: SQL Server Developer SQL, PHP, C#, Real Time,...

C#.NET Developer

£600 per day: Harrington Starr: C#.NET Developer C#, Win Forms, WPF, WCF, MVVM...

Day In a Page

Ukraine crisis: The phoney war is over as Russian troops and armour pour across the border

The phoney war is over

Russian troops and armour pour into Ukraine
Potatoes could be off the menu as crop pests threaten UK

Potatoes could be off the menu as crop pests threaten UK

The world’s entire food system is under attack - and Britain is most at risk, according to a new study
Gangnam smile: why the Chinese are flocking to South Korea to buy a new face

Gangnam smile: why the Chinese are flocking to South Korea to buy a new face

Seoul's plastic surgery industry is booming thanks to the popularity of the K-Pop look
From Mozart to Orson Welles: Creative geniuses who peaked too soon

Creative geniuses who peaked too soon

After the death of Sandy Wilson, 90, who wrote his only hit musical in his twenties, John Walsh wonders what it's like to peak too soon and go on to live a life more ordinary
Caught in the crossfire of a cyber Cold War

Caught in the crossfire of a cyber Cold War

Fears are mounting that Vladimir Putin has instructed hackers to target banks like JP Morgan
Salomé's feminine wiles have inspired writers, painters and musicians for 2,000 years

Salomé: A head for seduction

Salomé's feminine wiles have inspired writers, painters and musicians for 2,000 years. Now audiences can meet the Biblical femme fatale in two new stage and screen projects
From Bram Stoker to Stanley Kubrick, the British Library's latest exhibition celebrates all things Gothic

British Library celebrates all things Gothic

Forthcoming exhibition Terror and Wonder: The Gothic Imagination will be the UK's largest ever celebration of Gothic literature
The Hard Rock Café's owners are embroiled in a bitter legal dispute - but is the restaurant chain worth fighting for?

Is the Hard Rock Café worth fighting for?

The restaurant chain's owners are currently embroiled in a bitter legal dispute
Caribbean cuisine is becoming increasingly popular in the UK ... and there's more to it than jerk chicken at carnival

In search of Caribbean soul food

Caribbean cuisine is becoming increasingly popular in the UK ... and there's more to it than jerk chicken at carnival
11 best face powders

11 best face powders

Sweep away shiny skin with our pick of the best pressed and loose powder bases
England vs Norway: Roy Hodgson's hands tied by exploding top flight

Roy Hodgson's hands tied by exploding top flight

Lack of Englishmen at leading Premier League clubs leaves manager hamstrung
Angel Di Maria and Cristiano Ronaldo: A tale of two Manchester United No 7s

Di Maria and Ronaldo: A tale of two Manchester United No 7s

They both inherited the iconic shirt at Old Trafford, but the £59.7m new boy is joining a club in a very different state
Israel-Gaza conflict: No victory for Israel despite weeks of death and devastation

Robert Fisk: No victory for Israel despite weeks of devastation

Palestinians have won: they are still in Gaza, and Hamas is still there
Mary Beard writes character reference for Twitter troll who called her a 'slut'

Unlikely friends: Mary Beard and the troll who called her a ‘filthy old slut’

The Cambridge University classicist even wrote the student a character reference
America’s new apartheid: Prosperous white districts are choosing to break away from black cities and go it alone

America’s new apartheid

Prosperous white districts are choosing to break away from black cities and go it alone