BAE Systems in merger talks with EADS

LONDON (Reuters) - Britain's BAE Systems said on Wednesday it was in talks about a merger with EADS , the parent of Airbus, to create a European powerhouse in aerospace, defense and security.

BAE shareholders would own 40 percent of the combined group and EADS shareholders the remaining 60 pct with the combine structured as a dual-listed company, BAE said in a statement.

"The potential combination would create a world class international aerospace, defense and security group with substantial centers of manufacturing and technology excellence in France, Germany, Spain, the UK and the USA," BAE Systems said.

Shares in BAE Systems closed up 10.6 percent at 353 pence, while EADS closed 5.6 percent lower in Paris.

The two companies have a long history of collaboration and are partners in a number of projects, including the Eurofighter and a deal would also bring BAE back into having a direct interest in Airbus and its British plants, having sold its 20 percent stake in 2006.

Combined, BAE and EADS would have combined sales of about 72 billion euros, based on 2011 numbers, and would have 220,000 employees worldwide.

The companies said that due to the sensitive nature of the companies' defense business in countries stretching from the United States to Saudi Arabia and Australia, they were talking to governments around the world about the deal.

They said certain defense activities would be ringfenced with governance arrangements appropriate to their strategic and national security importance, particularly in the United States, given the importance of that market to the enlarged group.

A merger of the two European aerospace companies would not be expected to raise antitrust concerns in the United States given the modest amount of U.S. military revenues generated by EADS, according to two sources close to the deal.

They said a merger has been under discussion for several months, spurred in large part by concerns about declining defense budgets in Europe and the United States.

U.S.-based defense consultant Loren Thompson said a merger of the two European companies would create a larger enterprise that was equally strong in commercial and military products, the same strategy pursued for years by Boeing Co..

A Pentagon spokesman had no immediate comment on a possible merger.

A top Pentagon official told Reuters last week that further big budget cuts could make the U.S. Defense Department rethink its current wariness about additional mergers among top-tier companies in the weapons industry.

(This story was refiled to add dropped words "a deal" in paragraph five)

(Additional reporting Andrea Shalal-Esa and Laurence Frost; Editing by Guy Faulconbridge and Greg Mahlich)

(paul.sandle@thomsonreuters.com; +44 20 7542 6843; Reuters Messaging: paul.sandle.thomsonreuters.com@reuters.net)

Source: http://news.yahoo.com/bae-systems-says-talks-eads-tie-161613865--finance.html

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