BAE/EADS Defense Merger Under Fire

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We previously warned that the BAE Systems and EADS proposed aerospace and defense merger could come under fire. That appears to be the case with the new objections. CNBC discussed this on Monday as looking as though more risks are present.

CNBC has used two Reuters reports. It noted, "Britain, France and Germany resumed talks on Monday to try to prevent a disagreement over state shareholdings wrecking a proposed merger of EADS and BAE Systems." Another report said, "The largest shareholder in BAE issued a long list of objections to the group's proposed $45 billion merger with EADS on Monday, including concerns over state interference, poor terms and a lack of strategic rationale."

One of the reasons we discussed problems with a merger of this magnitude is that major U.S. defense orders would come under question due to how many nations might get access to critical systems. The other issue is that it would create antitrust issues throughout Europe, as this was called the equivalent of creating one massive contractor.

If the deal is blocked, it is good on a competition basis for U.S. defense contractors. The only wild card in the situation is that it might lessen the need for U.S. contractors to go through yet another wave of consolidation.

JON C. OGG

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