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BAE And EADS - Essay Example

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BAE And EADS

On the flip side, the deal would lead to political among other complexities. This report will give an analysis of the issues surrounding the proposal for merger of the two companies. Strategy and motivation analysis Invesco criticized the proposed deal citing poor terms, state interference and lack of strategic underlying principle. The problems that BAE has raised includes the share buyback programme , possible deviation from its generous dividend payout as well as the doubts imposed by inviting Germany and French stakeholders in the deal. The sharp cut in the defense spending by the U.S. is a big blow for EADS and BAE, but BAE is likely to suffer most because it is deeply exposed to the U.S. defense market. Furthermore, BAE is experiencing a serious reduction in the demand for the equipment it supplies for the US military, which are currently preparing to pull out from Afghanistan. Additionally, the firm is likely to suffer a big blow following the down-turn of the demand for the Eurofighter Typhoon fighter jet (Ranscombe, 2012). Figure 1: EADS DPS trend since 2007. As shown from figure 1 above, recently EADS has paid exceedingly high rate of dividends, which could be seen as a major motivation for BAE shareholders to enter the proposed merger (Le Figaro 2001). Stock market response analyses based on share movement and synergy multiples During the trading following the announcement on 12 September, the shares of BAE jumped by 10% to 336.1 pence ($5.41), as shown in figure 3 below. However, the shares of EADS plummeted by more than 10% following the announcement (shown in figure 2). Later, on 13 September, the shares of BAE fell back to just 2% above the level before the rumors emerged that the two companies were planning to merge (Norton-Taylor, 2012). Figure2: EADS share movement shortly before and shortly after the announcement Source: Thomson Reuters via FT Markets Data Figure 3: EADS share movement shortly before and shortly after the announcement Source: http://markets.ft.com When the reports hit news lines that there was a potential merger between the two companies, initially, the investors burst into a euphoria that affected the movement of the prices of the shares of the two companies. However, after uncertainty took shape, BAE’s shares drafted following a strong post-announcement rally, while the shares at EADS were moving lower (Petroff, 2012). On 12th September following the announcement, the shares of BAE were trading 1 percent lower at 338.90 pence, which was in line the decline in the wider market. As seen from figure 2 and 3 above, the investors’ reaction was swift, especially on Thursday when the shares of EADS fell by about 10 percent to €25.15, while those for BAE gained significantly on Wednesday following the news that the deal is simmering, going up to 337.10 pence in London. Synergy analysis The investors will have to ask themselves several questions in order to establish whether the merger is a good idea, including: (1) why is such a huge merger is the best means of solving the problems the individual companies are facing and also open opportunities for them? (2) Is BAE, which is a top US military contractor, the best company to help EAP achieve ...Show more

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BAE & EADS Proposed Merger [University] [Instructor Name] Contents •Introduction: •Strategy and motivation analysis •Stock market response analyses based on share movement and synergy multiples •Synergy analysis •Valuation •Corporate governance analysis •Conclusions Introduction EADS, which is the owner of Airbus and BAE system, which is the Britain’s largest manufacturing employer, announced their 29.8bn pound merger on 12th September 2012, a deal which could give Germany and France an interest in the UK’S major defense contractor…
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