An EADS/BAE Merger or Combination? Is It Even Possible? (Updated)

Boeing Co. (NYSE: BA) and other aerospace and defense contractors like Lockheed Martin Corporation (NYSE: LMT) and General Dynamics Corp. (NYSE: GD) could have some even larger competition to fend off.  We would note that the caveat here is that there are a couple IFs attached… IF this is true and IF it would even be allowed. Bloomberg TV has just reported that European rivals EADS and BAE are said to be in talks of exploring a combination.  What is interesting is that they also said that the companies would be expected to somehow remain independent so that they can get defense orders from the United States.

This would be a combination of the European Aeronautic Defence and Space Company (the parent of Airbus) and the surviving company of the British Aerospace and Marconi Electronic Systems merger from the 1990s. In London trading, BAE Systems plc shares are up 9% and EADS shares are up marginally in Frankfurt trading.

UPDATE AT 11:37 PM EST: Bloomberg and Dow Jones have both run confirmation headlines that a merger or sorts is in the works here. BAE reportedly would own about 40% of the combined company, so EADS would be the new dominant company.  It was also said that special shares would be issued to the governments of France, Germany, and the United Kingdom.

As far as whether or not the deal would even be allowed, all you have to do is go back a decade and recall that the European Union was able to prevent General Electric Co. (NYSE: GE) from acquiring Honeywell International Inc. (NYSE: HON).  The argument was that the deal would have been too anticompetitive.  The Europeans were able to prevent two American international giants from merging.  It would be safe to assume that American companies would actively protest this deal.

Boeing shares are trading down 0.2% so far, while Lockheed Martin shares are up 0.7% on the day so far.

Maybe these companies would be allowed to conduct a dual sourcing venture or something that allows suppliers to streamline distribution efforts. It is still too soon to know, but thinking of a merger here may be hard to fathom as far as antitrust approvals are concerned.

JON C. OGG