Sunday, September 16, 2012

BAE and EADS to create Defense Behemoth

Our security chief is set to give the long awaited brief on the incident several hours ago for the second time due to the outside interruption by the aide of one of the two generals present at the meeting in order to update us on the Chinese-Japanese face-off in the East China Sea. He is just about to start his brief as the red light flashes again.

This has been the third time during this conference we had an outside interruption with urgent messages by aides. At this time I am aware that the sunrise over Singapore harbor will not happen anymore. There will be always another day. I wonder what happened now that can't wait for another hour. I assume the generals will have a busy few days ahead of them given all the activity in the Middle East as well as Far East.

The green light is on and the doors are being unlocked from the outside. As there are no objections, we unlock the doors from the inside and the same four security guards escorts in another aide. I recognize the aide form the office and to my surprise the message is for me. Half a dozen thought shoot through my head as the young aide approaches me and I am curious to know what the update may be. We are currently working on two bigger projects and any urgent message could be positive or negative.

I stand up as she approaches my seat on the roundtable and giver her the nod to brief me. I expected several possibilities, but definitely did not expect to hear what she had to say to me. Two of the defense companies we are actively involved in are planning yet again to merge and create the second biggest defense company, behind Boeing, on the planet.

BAE Systems, the British defense giant, has plans to merge with EADS, the Franco-German aerospace and defense leviathan. Talks about a potential merger are over a decade old, but now have resurfaced potentially to try one last time to create an aerospace and defense behemoth. Most shareholders are opposed to the deal, but we fully support such a merger and I need to get out of this conference in order to get to work on what need to be concluded in order to assist the merger talks.

BAE Systems is known for its dividends while EADS has been more stingy about rewarding long-term investors. In order to cover the shortfall EADS has pledged an additional GBP 200 million to cover the shortfall and convince more of its shareholders to agree to the deal. Shareholders are not the only ones who can derail the merger which is why we need to work extremely diligent in order to ensure the successful merger of both companies.

Smaller shareholders are not our concern as they can easily be convinced to sell out their stakes. One key issues may be the veto rights of Britain, France and Germany. This is another reason why governments need to stay out of business. Daimler out of Germany owns 15% of EADS while French company Lagardere owns an additional 7.5%. Daimler is open to sell its stake which may be our best shot of ensuring 15% of yes votes while Lagardere is rumored to monitor progress and may be convinced to sell as well.

Union unrest as well as strikes are almost guaranteed as both companies combined employ a global workforce of over 200,000. This number should be reduced down to roughly 120,000 in order to streamline operations and implement necessary cost cuts. It will allow the company to further invest in its expansion and strive to become number one in the aerospace and defense market.

Boeing claims it is not worried about the competition. We all know how Boeing dropped to its knees and begged the U.S. government to reconsider the huge tanker deal awarded by the U.S. Air Force to a consortium led by Airbus, owned by EADS. Boeing hopes for stark opposition from the U.S. government, the biggest market for BAE Systems.

I am very excited about the news and the work which awaits me as I was just handed my new unofficial assignment. I thank the aide and request an emergency conference call with our biggest investors after this conference. She nods and is being escorted out of the conference room by the four guards who led her in. We lock the doors and here them being locked again from the outside. Before we continue we agree that we shall have no more interruptions and bring this lengthy conference to an end by allowing our security chief to brief us for the third time. As we say, three is a charm.

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