Reactions to merger talks between EADS and BAE Systems have been distinctly lukewarm, with one investor describing it as a "deal without logic".
The two manufacturers released a joint statement detailing the merger plan after the stock markets closed on 12 September. Trading the on the 13 September has shown precisely what investors think: EADS's share price fell 9%, with BAE Systems not far behind losing 8% of its value.
In a statement, Argonaut, a London-based investor in EADS describes it a deal "without logic and without winners" which would create a business "inferior to the sum of the parts".
Its interest in EADS dates from 2009 and is "based on the attractiveness of the Airbus franchise" which it forecasts will begin generating even higher profits as in-development aircraft such as the A350 and A400M begin to ramp-up.
It adds: "So with EADS shareholders finally seeing the benefit of the company's ambitious recent Airbus investments, its shareholders are rightly angry that these are now being shared with the shareholders of BAE, whose own business, being wholly exposed to government defence budgets would seem to have limited short term growth prospects.
"It is also doubtful whether the combination of the two company's defence assets will bring any meaningful cost synergies or accrue any competitive advantage. Indeed, any merger is likely to be fraught with political sensitivities and distract EADS management from executing on the new Airbus projects."
Groupe Lagardère, which holds around 11% of the French government's 22.33% stake in EADS, also delivered a distinctly muted response. It says it will ensure "all consequences associated with the proposed EADS-BAE Systems merger are taken into consideration" before it consents to the deal.
Doubts centre too on what happens in the United States. BAE Systems derives a significant chunk of its revenue from its US operations thanks to its acquisitions of Sanders and United Defense in 2000 and 2005 respectively. If regulators were to force a sale or separation of the US business then a major rationale for the merger disappears.
But if the deal goes ahead without significant sell-offs then it would create a truly global aerospace and defence giant, with a combined annual turnover of $95.8 billion, based on their 2011 figures, with around $74 billion generated by aerospace operations. By way of comparison, Boeing's 2011 turnover was $68.7 billion.
Source: Flight International
