BAE/EADS to ring-fence
U.S. firm to save $45 billion deal-paper
Current
event
Issue:
Europe (EADS:
European Aeronautic, Defense & Space Co.) is planning to unite with Britain
(BAE: BAE Systems Plc.) in a bid to create the largest commercial aviation and
integrated Defense Company in the world today. The formation of such a company
would probably raise concerns in national security and sensitive government
programs especially for the United States of America and could lead to major restructuring
of the defense industry globally.
Overview:
This arena
has seen its share of mergers and acquisitions in the past, like ‘Lockheed’ and
‘Martin Marietta Corp’ forming ‘Lockheed Martin’ and then followed ‘McDonnell
Douglas’ being purchased out by Boeing in 1997, but none as large and complex
as the proposed BAE and EADS. Traditionally, BAE has been a key component of
the US Defense & Aerospace Sector, has US national security access and a
top partner especially for Boeing (jet parts and the aerial refueling tanker) and
also with Lockheed Martin (F-35 and replacement for Humvee trucks). And in turn Boeing and Lockheed Martin have
been in fierce completion with EADS for quite some time now, especially in the
US defense sector, the memories of the Boeing’s win over EADS (and Northrop
Grumman Corp) in the battle of the next generation Aerial Refueling Tanker - US
defense contract is still fresh in our minds.
Anticipated Outcome and Managerial
implications:
This new commercial
& defense organization, if formed would present a wide range of international
management challenges which would not just stop at an extremely complex
organizational structure but also require a restructuring and resigning of
almost all existing Defense & commercial contracts with the US government
& US aerospace companies. A similar organization was considered nearly a
decade ago but was then abandoned. But the proposed new company will have a US specific
division and will be able to compete with the traditional American giants like
Boeing and Lockheed Martin in the US Defense and Aerospace markets. I can foresee
that the merger of EADS and BAE would create a global giant, being touted to be
extremely valuable for its customer and more in line to be financially
successful to its shareholders. It is
still unclear how this extremely complicated merger would ultimately unfold and
it it will be successful this time around. This inter-organizational merger will be
keenly watched and studied by government regulators, politicians, strategists,
etc across the world in the days to come.
Resources:
1. “BAE/EADS
to ring-fence U.S. firm to save $45 bln deal-paper” Reuters.com, Web. 23 September
2012
2. Carola
Hoyos and Stephanie Kirchgaessner. “BAE-EADS faces tougher US 'firewall’”
Financial Times, Web. 18 September 2012
3. Andrea
Shalal-Esa and Alwyn Scott. “Why BAE-EADS merger is double trouble for Boeing”
Reuters.com, Web. 21 September 2012
4. “EADS and
BAE deal needs 'thorough examination'” BBC.co.uk, Web. 17 September 2012
5. Andrea
Rothman and Jacqueline Simmons. “EADS Explores BAE Combination in Aerospace
Revamp” Bloomberg.com, Web. 14 September 2012
6. Tom
Bawden. “Pentagon wants more details of BAE-Eads merger” Standard.co.uk, Web.
18 September 2012
http://www.standard.co.uk/business/business-news/pentagon-wants-more-details-of-baeeads-merger-8152656.html