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BAE Systems-EADS Merger Plan - Essay Example

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BAE Systems-EADS Merger Plan

However, unification of two struggling companies may not always guarantee their resurrection. This paper will specifically discuss whether or not mergers make economic sense with particular focus given to the reaction of UK, French, and German governments to the BAE/EADS merger. BAE Systems-EADS merger plan In the last year, Britain’s BAE Systems planned a €38bn (?30.4bn) merger with its rival European Aeronautic Defence & Space Co (Franco-German maker of Airbus civilian jets). According to a Telegraph report by Ebrahimi and Monaghan (2012), the planned merger would have formed the world’s second biggest aerospace and defence company after Boeing. If the merger had become successful, the merged entity would have achieved combined sales of ?60bn and employed 220,000 people worldwide (ibid). In addition, the planned venture would have contributed to Europe’s military efforts, developed British nuclear submarines and own airbus, and attained the status of biggest plane manufacturer in the world (ibid). Many industry analysts supported this deal as they believed that the planned merger would provide the companies with the synergies of combined operations. Proponents of this strategic plan pointed out that BAE systems have strong presence in the US market where the government is one of the largest and potential customers. Hence, EADS can take advantage of this potential strength of BAE Systems. At the same time, the planned deal might also benefit BAE Systems to improve its earnings by spreading its operational area to commercial aircraft and space satellites. The shrinking Western Defence market was also cited to justify the planned merger. The 60/40 split in favour of EADS was a major controversial term of this merger. From another view point, “the mathematical flipside for BAE shareholders is that the merger is a no-brainer at 60/40” (Boland & Kirk 2012). Anyhow, the talks over the BAE-EADS merger did not reach a mutual agreement and hence the initiative was called off later. Reaction of UK, French, and German governments UK and French governments took a favourable stand toward the BAE Systems-EADS merger whereas the German government opposed this strategic move. According to a BBC report (2012), while evaluating the approach of Britain toward this merger deal, the country particularly wanted its counterparts to restrict their influence in the new company so as to keep the strong relations with the US government. Hence, the British government needed to obtain a dominant position in the merged company. However, it must be noted that Britain’s officials took huge efforts to make this deal a reality. In a close observation, it seems that the British government emphasised more on its personal interests rather than the continent-wide interests. To illustrate, the British government particularly wanted to maintain BAE’s strong position in the huge US market and the country was never willing to spoil its good relationship with the US. The British government believed that obtaining a strategic control over the merged company would assist the country to continue its strong business relationship with US. In sum, Britain tried to decrease other countries’ political influence over the new venture. While analyzing the stance of France in the BAE-EADS merger, it seems that France was interested to make this deal ...Show more

Summary

As market competition is becoming more and more intense,companies are to take up innovative strategic moves in order to ensure their long-term sustainability.The concept of merger is widely employed today with intent to defend stiff market competition …
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BAE Systems-EADS Merger Plan essay example
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