Major Changes Ahead for the Defense Industry?

One of the biggest storylines in the industrials sector lately has been the anticipated merger of BAE Systems and EADS, otherwise known as the European Aeronautic Defence and Space Company. However, it turns out that the deal is not going to happen anymore, with the call-off boiling down to the convergence of too many differing interests.

The question everyone's asking now is, what happens next? While that's little more than a guessing game at this point, one thing is for sure: BAE Systems has a very solid position in the world's biggest defense market, that of the U.S. There's speculation that its combat vehicle unit could be an attractive acquisition for General Dynamics' (NYS: GD) land systems division, or even the possibility that BAE Systems could split up, with Boeing (NYS: BA) potentially interested in its civil aviation unit and Lockheed Martin (NYS: LMT) perhaps eyeing the military aviation business.

Whatever ends up happening, though, there will still be enormous hurdles to overcome, including Pentagon approval, anti-trust approval, and the huge risk inherent for defense contractors at a time when defense budgets are shrinking. In the video below, analyst Brendan Byrnes delivers an in-depth analysis on this story and the many issues at hand, and he also advises investors on how to proceed going forward.

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Andrew Tonner has no positions in the stocks mentioned above. Brendan Byrnes has no positions in the stocks mentioned above. The Motley Fool owns shares of General Dynamics, Lockheed Martin, Northrop Grumman, and Raytheon Company. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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