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EADs-BAe merger case analysis (Corporate Finance) - Assignment Example

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EADs-BAe merger case analysis (Corporate Finance)

Even though the companies had not revealed benefits and a detailed business structure for the merger it is believed that negotiations with the respective states had not reached that level. The two firms were optimistic that the merger would have built a strong case to pass to the owners of the business. This discussion will address the valuation of the two firms using various models, the motivation and strategy evaluation, the response in the security market and corporate governance analysis to seek ways of making such moves successful and establish the reasons behind the failure. Strategy and Motivation Analysis The motivation of the proposed merger were based on global rivalry, share in the market by the firms, the level of complimentarity, variation in the industrial structure like offsetting of the monopoly. BAE was also believed to be the springboard that would enable EADS to have its biggest jump it craved for in the Northern American continent (Jane's Defense Industry, 1900; p. 75). BAE has a chief role in the manufacture of military equipment as it was noted that 95% of the BAE systems total sales were related to military sales. BAE also plays a vital role in the production of military aircraft such as the Typhoon fighter and the Tornado fighter bomber. The terms of the negotiations were that EADs was to offer 35 billion Euros which was 12% bid premium even though the new ownership was to be divided on a ratio of 3:2 in favor of the shareholders of EADS. In case the term was favorable to BAE it would shape the likelihood of the merger’s success. The US state would also call for disposal of asset upon the merger strategy which was set for security review. There are no current plans to divest any of the company’s operations in the United States as a section of merger with EADS according to the spokesman of BAE (Spulber, 2007; p. 3). EADS and BAE had a deal to have cost savings without necessarily giving details in regard to the scale and the manner in which they might be generated. Amongst the potential opportunities was the potential to accumulate more sales as the network by BAE in the export markets was immense such as ties with India, Australia and Saudi Arabia which would open doors for the EADS. The benefits from the merger were meant to extend over widening markets and that the firms were to target industrial benefits and operational synergy in all joint business. The likely synergy from the merger comprised of a minimum synergy which could be derived as the value of the pre-merger of both companies + the synergy = pre-merger security value + the number of shares for the post-merger. Taking S = Synergy and taking data on 11th September where the EADS share price was 29.30Euros while the number of outstanding shares as at 31st December 2012 being 8.21 billion shares, it then stipulates that the pre-merger value for EADS was 26 billion Euros. Conversely, taking the share value for BAE on 11th September, 2012 as 4.75Euros and the number of outstanding shares on 31st December, 2012 as 3.59 billion, it applies that the premerger value for BAE is 17.05 billion Euros found as 3.59X4.75 Euros (Financial times, 2013; p. 1-7). Now; by taking the pre-merger security price = the average price of the stock prior to the merger to be EADS + BAE It concurs that ...Show more


EADS-BAE MERGER CASE ANALYSIS Name Institution Date Introduction The previous declaration by BAE systems plc and EADS N.V to merge on 12th September 2012 was put off on 10th October, 2012. The two firms were made to merge based on a dual listed company structure but the discussions were put off based on various reasons…
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EADs-BAe merger case analysis (Corporate Finance) essay example
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