EADS Seeks BAE Merger

Companies aim to build European counterweight to Boeing.

European Aeronautic, Defence & Space Co. and BAE Systems Plc are reviving a decade-old plan to build an equal to Boeing Co. that would balance civil and defense operations in an era of shrinking military budgets.

EADS stock slumped as much as 10 percent in Paris, while BAE declined as much as 9.2 percent in London on concern that a combined company will struggle to achieve savings and penetrate the U.S. defense market. EADS, the parent of Airbus SAS, would control 60 percent of the new entity, with London-based BAE owning the rest, the companies said yesterday.

Airbus Dependence

The companies, who cooperate on the Eurofighter warplane, first explored scenarios for a combination in early June, followed by the first outlines of a combination a month later in Munich that included the 60-40 split, a person familiar with the talks said. Besides Enders, EADS chief strategist Marwan Lahoud has been a driving force behind a deal, said the person, who asked to remain anonymous because the information isn’t public.

U.S. Strength

BAE, led by CEO Ian King, was the U.S. government’s ninth-largest contractor in fiscal 2011, with $7.3 billion in direct, or prime, contracts, while EADS was its 100th, with $684 million in contracts, according to a Bloomberg Government study ranking the top 200 contractors.

European Schism

The British government’s Department of Business, Innovation and Skills said it was aware of the merger proposal and that while any business benefits are “a matter for the companies,” it will ensure that the public interest is protected in any deal.

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