Sources claim BAE and EADS are discussing new merger terms

Defence group BAE Systems and aerospace giant EADS, which recently confirmed they are in talks with one another over a possible merger, were once again the subject of speculation after sources claimed they are considering whether to increase EADS's stake in the company company.

The sources have reportedly said that the two companies are discussing the possibility of valuing EADS at between three and five percentage points higher than the 60% of the combined company that was previously suggested. This would give a ratio of between 63:37 and 65:35.

However, this story was contradicted by another source, who said there was no discussion of a change to the ratio, according to Reuters.

Try 6 free issues of MoneyWeek today

Get unparalleled financial insight, analysis and expert opinion you can profit from.

Start your trial

Sign up for MoneyWeek’s free twice-daily newsletter.

Join more than 165,000 subscribers and keep yourself informed with latest financial news, insights and expert analysis to help you understand what really matters when it comes to your finances.

Join more than 165,000 subscribers and keep yourself informed with latest financial news, insights and expert analysis to help you understand what really matters when it comes to your finances.

Sign up

As was previously announced, the potential merger would be implemented through the creation of a dual-listed company structure. This means that both companies would operate as one group but would be separately listed on their existing respective exchanges in London (BAE) and Paris (EADS).

The companies have been discussing the potential implications of the proposed transaction with a range of governments given that they operate "highly secure and sensitive defence businesses" around the globe.

They previously revealed that they would have to ringfence some of their defence activities, "with governance arrangements appropriate to their strategic and national security importance, particularly in the USA, given the importance of that market to the enlarged group."

In a statement made earlier this month, the company said: "Subject to receiving appropriate shareholder approvals, the parties envisage issuing special shares in BAE Systems and EADS to each of the French, German and UK governments to replace the existing UK government share in BAE Systems and the stakeholder concert party arrangements in EADS.

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

The two companies are currently partners in a number of important projects, including the Eurofighter and MBDA joint ventures.

Shares in BAE fell 1.4% to 329.90p by 13:53, while EADS rose 0.66% to €25.16.

NR