BAE's largest shareholder opposes EADS deal

LONDON Mon Oct 8, 2012 5:57pm BST

BAE Systems employees walk together at Roysth naval yard in Rosyth, Scotland October 2, 2012. REUTERS/David Moir

BAE Systems employees walk together at Roysth naval yard in Rosyth, Scotland October 2, 2012.

Credit: Reuters/David Moir

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LONDON (Reuters) - The largest shareholder in BAE issued a long list of objections to the group's proposed $45 billion (27.9 billion pounds) merger with EADS on Monday, including concerns over state interference, poor terms and a lack of strategic rationale.

In a scathing and lengthy statement, Invesco Perpetual said the deal could also have a negative impact on the British firm's position in the United States, where it has unique access as a foreign firm to sensitive defence work.

"Invesco believes BAE is a strong business with distinctive positions in the global defence market, especially in the U.S. and UK, and good stand-alone prospects," it said, adding that it had, on and off, owned shares in BAE for over 20 years.

"We look forward to discussions with the board of BAE and other BAE shareholders in the coming days."

The statement, which analysts described as a comprehensive demolition of the strategic logic behind the deal, comes two days ahead of a UK stock market-imposed deadline for the two companies to set out a more detailed blueprint for the merger.

It also follows the rising tensions that spilled out into the public last week, sparked by France, Britain and Germany jockeying over the role the state would take in what would be the world's largest aerospace and arms group.

British Defence Secretary Philip Hammond warned on Sunday that Britain would block the deal if key "red line" priorities were not met, including an ability to cap the influence the French and German governments would have on the new company.

"They own 13.3 percent and you need 25 percent to block it," Espirito Santo analyst Edward Stacey told Reuters. "This does not kill the deal - and it's not to say they could not change their minds if the merits are spelled out to them - but it's a blow."

Shares in BAE were down 1.3 percent, slightly underperforming the wider FTSE 100 Index which was down 0.9 percent. Shares in the European group EADS were down 0.5 percent.

Setting out its objections under eight categories, Invesco said the structure of the deal would hamper synergies while the ratio did not reflect BAE's superior cash generation.

It also felt the level of state shareholding in the combined group would heavily impair its commercial prospects.

(Reporting by Kate Holton; editing by Paul Sandle)

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Comments (3)
AlisdairWilkes wrote:
It’s pretty hard to disagree with Invesco. Governments cannot really be trusted; the German, and especially the French, states will turn any discussion about employment into a moral issue in the future, come up with a load or Orwellian speak and then renege on any agreements struck at the time of a merger.

It is mad to trust these people.

Oct 08, 2012 12:36pm BST  --  Report as abuse
About-Face wrote:
Its even worst to trust the CEOs, the investment bankers, the solicitors printing the volumes of documentations and all the rest on that food chain. BAe must remain British – look at the way your car industry went – even your prize Land Rover, Jaguar, Austin Mini – they are all foreign owned aren’t they! By the way, I am a foreigner and would like to see US and UK businesses reemploy indigenous citizens in their factories.

Oct 08, 2012 1:14pm BST  --  Report as abuse
Raymond.Vermont wrote:
The only possible winner out of a EADS-BAE tie-up would be Dassault…

Which is exactly how the French (and their Spanish economic slaves) would want it to be!

No to merger. (well not with any French interest involved anyway)

Oct 08, 2012 6:03pm BST  --  Report as abuse
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