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BAE Systems in merger talks with French-based defense contractor



The parent corporation of the state’s largest manufacturing employer confirmed Wednesday that it is in merger talks with a French-based defense contractor, the outcome of which could create the biggest aerospace company in the world, a position now held by Boeing.

British-based BAE systems and the European Aeronautic, Defense and Space Company (EADS), issued a joint statement on Wednesday, following reports late Tuesday by the Bloomberg financial news service.

“BAE Systems and EADS believe that the potential combination of the two businesses offers significant benefits for all stakeholders,” according to the statement issued on the London Stock Exchange as fluctuating share prices for both companies began to attract investor attention.

The statement said the combination of the two companies, “offers the opportunity of greater innovation, long-term financial stability and an extended market presence that will enable them to compete more effectively on the world stage.”

BAE’s Electronics Systems division, headquartered in Nashua, has about 4,500 employees locally and a total of about 12,000 division-wide. It is one of the state’s largest private employers, with facilities in Manchester, Hudson, Merrimack and Nashua. EADS is best known as parent company of Airbus.

Any agreement will require approval by the boards of both companies and would be subject to a number of regulatory and shareholder approvals. “There is no certainty at this stage that the discussions will ultimately lead to a transaction,” according to the statement issue by the two companies.

Chris Way, director of the state Division of Economic Development, said that review could include hearings or analysis by the Committee on Foreign Investment in the U.S. (CFIUS), an inter-agency committee authorized by Congress to review transactions that could result in control of a U.S. business by a foreign person. Both companies are European-based. BAE is headquartered in London, while EADS is based in Toulouse, France.

“We’re holding off to see what happens in the future,” Way said. “BAE has really deep roots in Nashua and has demonstrated its commitment to the community, so we are always optimistic, and will be in close touch with the company moving forward.”

EADS would control 60 percent of the new entity, while BAE would own the rest, according to the joint statement. Bloomberg reports that some of the American-based defense assets would be kept separate to ensure continued access to the U.S. military market.

If successful, the merger would create an aerospace and defense behemoth, with 220,000 employees worldwide and sales approaching $100 billion, according to Bloomberg.

A BAE spokesman at U.S. headquarters in Arlington, Va., said the combination of the two companies would “allow us to offer a more competitive set of solutions to our defense and U.S. customers, and will allow us to invest in new resources and new research and development opportunities in the United States.”

The spokesman, who asked not to be identified, said the two companies do not compete in many areas, and so would complement each other. While EADS is a larger player on a global scale, BAE is by far a larger U.S. defense contractor.

BAE was the ninth largest U.S. government contractor in fiscal 2011, with $7.3 billion in direct government work, while EADS was 100th, with $684 million in contracts, according to Bloomberg.

“From the U.S. perspective, this would be a large U.S. defense contractor adding a smaller or complementary company to its business,” said the BAE spokesman.

BAE shares rose as much as 12 percent in London after the Bloomberg report, while EADS fell as much as 6.2 percent in Paris.

The BAE division headquartered in Nashua is focused primarily on electronic flight systems and thermal imaging technology used in such tools as night vision goggles, and is a prime subcontractor with Lockheed-Martin for development of the F-35 fighter jet fleet. “During the process of the discussions with EADS, BAE will continue to focus on meeting all of its current commitments,” according to the joint company release.

“BAE is a great company and a good corporate citizen here in New Hampshire. This is something we will be watching closely,” said Colin Manning, spokesman for Gov. John Lynch.

Sen. Kelly Ayotte said she spoke with BAE Systems’ CEO Linda Hudson on Wednesday about the pending merger. “She assured me that BAE’s operations in the United States — including New Hampshire — would continue as normal,” Ayotte said.

Rep. Frank Guinta said, “BAE is an important, respected employer in New Hampshire. Some of its employees live in the 1st Congressional District, and the work they do plays a vital role in helping keep America safe and secure. I look forward to BAE maintaining a strong presence in our state’s economy for many years to come.”

A spokesman for Sen. Jeanne Shaheen expressed similar optimism. “Senator Shaheen is confident that the superb quality and excellent work that BAE does to protect our nation and enhance our military will continue here in New Hampshire well into the future.”

Boeing Chief Executive Jim McNerney told the Reuters news agency on Wednesday that his company was not threatened by the possible merger of two large competitors. He said the merger talks, “reflected the start of global consolidation in the defense industry, spurred by declining military spending in the United States and Europe, and was likely aimed at giving EADS greater access to the U.S. defense market.”

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Dave Solomon may be reached at dsolomon@unionleader.com.




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