EADS & BAE Systems In Merger Talks

By: Sal Palma

Two of Europe’s largest defense contractors, EADS and BAE Systems, have entered merger negotiations, which if approved would result in a European defense giant on par with Boeing. The €38 billion deal would alter the global defense industry fabric and blaze a path to further consolidation in the U.S. and European defense sector.

The proposed merger will need the approval of EADS’s board of directors as well as France, Germany, UK and the US. The aggregation of resources, technologies and markets would place the joint company on equal footing with Boeing, which currently has a market capitalization of €41 billion.

Government owners, principally Germany who holds a 22.5% stake in EADS, have serious concerns so it may be quite some time before you see any decisions. However, stockholders should do quite well, especially in light of global government cutbacks and the looming sequestration.

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