EADS @ Eu 28, -Eu 1.67 (-5.63%).
I would much rather be looking at iPhone 5 and its potential to boost Apple's earnings but the potential merger between EADS and BAE looks more pressing, particularly as I hold BAE in my portfolio (August 2012: Portfolio update.).
Really not sure I can understand the logic of the BAE EADS merger which is obviously now at quite a mature stage of negotiation.
Amidst the bureaucracy and difficulties previously seen BAE sold its 20% stake in Airbus in 2006, in a move that it was presumed would make it a more attractive proposition to partnerships and contracts in the US.
At the time, a late intervention by EADS, in releasing an announcement on delays to the A380 program also caused controversy by subsequently bringing down the value of the 20% stake as well as opening the EADS executives to accusations of insider dealing following executive share sales prior to the announcement.
According to Wikipedia (http://en.wikipedia.org: Noël Forgeard), the then CEO, Noel Forgeard, "made a 2.5 million Euro profit on the sale of EADS shares,[1] with his children earning 4.2 million Euro, just weeks before news of Airbus A380 delays was released.[2] Forgeard denied
any wrongdoing, claiming that he was a scapegoat in the matter.[3]
Forgeard resigned as CEO of EADS on 2 July 2006 and was replaced by Christian Streiff.[4]"
Thats not to say that BAE hasn't also had its share of controversy given various SFO investigations and accusations of incentives.
But back to the present, reports suggest that BAE will hold 40% of the enlarged group and that it would retain a dual listing in London and Paris (http://www.sharecast.com: BAE surges on possible tie-up with EADS).
However, the group will have a unified board management structure.
Yeh right I've heard that one before!
Sensitivity, ring fencing, national interests. Even putting aside the history of executive feuding, political conflict, and accusations of subsidies and insider dealing, it really does sound like an unwieldy bureaucratic nightmare waiting to happen.
You can just see the scheduling of "summits" ahead of any decision can't you.
Surely it must also put paid to BAE's US ambitions given the constant war over subsidies between Boeing and Airbus.
Given that the BAE statement came out after, and in response to the share price surging (http://otp.investis.com: Stmnt re Share Price Movement), the news was obviously leaked and being acted upon by somebody so perhaps the insider dealing is a hard habit to kick.
Looking forward, it also looks like there will be a hit to BAE shareholders with all this talk re. different dividend payout philosophies.
As mentioned already, it looks like negotiations are fairly well advanced as well, which probably won't give me the time or information to properly consider the situation.
The shares have gone up though, which in the short term is good (they might yet deflate), but BAE doesn't go ex dividend until the 17th October.
And 7.8p per share represents 2% of the current share price of 363.6p.
To be fair though, there just isn't enough information to make a comfortable judgement here but my overriding perception is negative given EADS history, bureaucracy, and politically motivated roots.
The tentacles of control and proposed government interests don't suggest anything to me of a competitive, commercially astute organisation.
I actually can't even think of BAE in that light yet given recent results (BAE: 2011 Preliminary Results.), but it has at least taken steps and as a stand alone entity it can exercise some ambition and control over its own destiny whilst attempting to make itself a world class manufacturing organisation.
As it stands I worry that, despite protestations of centres of excellence and leading technology the new organisation might be nothing more than a political football to be bounced around the various governments and/or shareholders as it has been in the past (see corporate governance - http://en.wikipedia.org: EADS).
I'm not overly optimistic on the prospects then for what could be a gargantuan organisation but I will have to try to keep an open mind in the coming days and weeks in the hope that a more positive chink of light can be thrown on the venture.
If it could succeed then it would certainly create some kind of monopolistic defence/aerospace organisation in Europe and rank alongside US rivals.
Perhaps picking the bones from some of the old pearls of investment wisdom might provide me with some direction here:
- "buy on the rumour, sell on the fact" or
- "its better to travel than arrive".
I've just had another thought though, which I will follow up in a second part to this post, regarding how this might pan out but need to take a look at the charts and re-read what we know now (Part 2: BAE takes off on proposed merger with EADS!).
- http://www.sharecast.com: BAE surges on possible tie-up with EADS
- http://otp.investis.com: Stmnt re Share Price Movement
- http://en.wikipedia.org: EADS
Related posts:
- August 2012: Portfolio update.
- BAE: 2011 Preliminary Results.
- Part 2: BAE takes off on proposed merger with EADS!
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