Wednesday, October 3, 2012

BAE, EADS continue Merger Talks

I call in the second in command of my six member security team and ask him the same questions I have asked the commander. His response was similar and he informed me that the other four will respond in the same way. He told me he would want to save me some time, so I decide to call the other four members in my office to conduct the interviews and move on to more pressing matters.

One of the them has an update on the interrogation of the five detained assassins. Two of them have been broken and they revealed their target. One of them was contracted to execute the Chief Military Officer while the other one was supposed to assassinate the Chief Financial Officer. They did give away the name of their co-assassins which made the task much easier for us. The CMO as well as CFO have been informed of the latest results.

Those four will be flown to an offshore facility and face execution. One remains in custody and has not revealed his target directly, but we have to assume it was the Chief Investment Officer. I look out the window and see the Singapore harbor in the distance. So, the CIO was the third target. One assassin has been detained and one is at large and trained to complete his mission at all costs which means he will be back. Fortunately, I have a six member security team which will protect me from a second attack.

The commander joins us and he understand that I have received the news. He also says the five assassins are flown to Bravo Foxtrot Delta for processing or in other words execution. We have one at large and the commander decides to split the team in two while I set up shop in HQ until the threat has been neutralized. Four members will remain with me at all times and two will go out and hunt him down. I need two guards to drive to the airport and pick up my girlfriend who is supposed to land in two hours.

As my office clears out I return my attention to the BAE-EADS merger. The French as well as German governments who together with Lagardere and Daimler own 22% of EADS have agreed to each receive a 9% stake in the new company, which would be the world's biggest defense contractor. The UK government agreed to receive a golden share which gives it veto rights and the ability to block business operations it does not approve of. It is sad that the UK would accept those terms and very understandable that BAE investors feel left out of the deal.

Unless drastic changes will be made, this deal will fall apart as BAE will not gather enough shareholder votes for the merger. One of the prime objectives was to loosen government intervention in EADS while boosting profitability for both companies while injecting growth initiatives and profit expansion. Unfortunately, France and Germany are already in a gridlock as to where the headquarters of the merged company should be located.

France suggested Toulouse, home base of Airbus, while Germany would like to see it in Munich. The UK should pitch in and suggest it should be moved to London. The best solution may be to get rid of all government stakes and relocate it to Brussels. Nobody wants to see the merged company in a Franco-German controlled region. An Anglo-German combination would be exotic and and Franco-Anglo option unthinkable.

BAE as well as EADS have until October 10th to present a final merger plan to investors. They may ask for an extension but the same issues which will prevent this deal from being approved by both companies and three governments are the same reasons this merger has failed in the past. Neither government, especially the French and German, are willing to loosen their control and allow this company to prosper in the free market.

BAE investors needs to block this deal until we can structure one which will eliminate government interference with day-to-day business operations. The merger is a great idea, but we need to buyout the government stakes and get Lagardere and Daimler on our side. This will be a project which will require plenty of capital and it may be time to ring up a few Middle Eastern contacts in order to evaluate the potential to amass enough fire power and create a new behemoth in the aerospace and defense industry. A board seat in the combined company is something to strive for.


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