Followup on BAE - EASD Merger...

...which appears won't be happening.

Per the Financial Times:

Government officials in London, Paris and Berlin blamed each other for not backing the €36bn tie-up between BAE Systems, the UK’s defence champion, and EADS, Europe’s biggest civil aerospace group, while investors accused BAE of having a muddled strategy that threatened shareholder value. 

An opinion piece in the Economist blames it on Germany (EADS ownership is complex; a large portion is controlled by Daimler).  And, the BBC has a very nice summary of the whole deal.

Back to Black?

In both 320 sections, we've recently been talking about bribery, with some reference to the 2003-2006 scandal involving BAE Systems (British Aerospace Engineering) and Saudi Arabia, with a supporting cast of a large flock of fighter jets, a pink airplane, a peacock-blue Rolls-Royce, and numerous sports cars.

Although there was some speculation that BAE chairman Sir Dick Evans and his high degree of cross-cultural awareness played a part in securing the Saudi contract.

Well, BAE is in the news again.  There's a proposed merger between BAE and EADS (European Aeronautic Defence and Space Company).  Per the Financial Times:

Both companies are aiming to reach an agreement by October 10, according to two people familiar with the deal talks. BAE and EADS executives wanted to decide “whether this thing will fly or not” by that date, although the deadline could be pushed back if necessary, one of these people said.

Some Background

Both companies are defence contractors (that is, weapons manufacturers), although only about a third of EADS revenues are military (EADS includes Airbus, which is civilian aircraft).

The Economist quick update on the arms business

EADS is a Dutch company, with a complex ownership structure that includes the German, French and Spanish governments and Daimler and worldwide operations (including China and Brazil). 

BAE is British owned and  deals primarily with the UK and other English-speaking countries (US and Australia), with significant interests in India and Saudi Arabia.

The Merger

According, again, to the Financial Times, the motivation behind this is mutual benefit.  BAE has a significant presence in the US defence market (which is almost half of the world's defence spending), allowing the EADS / BAE combination to take on Boeing.  And, if military markets dry up (though plans would be to expand into additional lines of military hardware), EADS has Airbus, which is civilian aircraft.

However, nobody else -- shareholders, governments, employees, labor unions, and the lady that pushes the food trolley on the Hogwarts Express -- likes the idea.

More later....

The US Reaction

Here's the New York Times coverage; from the comments, it appears that US observers are worried about the potential power and size of the mergerd firm.

Renault sells $4.2B stake in truck maker Volvo - Yahoo! News

Renault sells $4.2B stake in truck maker Volvo - Yahoo! News

Ok. This is where we need a handy laminated chart to figure out what's going on.

First, what Renault owned was not the automotive part of Volvo. The Chinese own that now; Ford did own it and recently sold it to the Chinese automaker Geely.

What Renault sold what their ownership in the still-Swedish-owned Volvo Truck.

Straighforward enough, you might say. Not really, because that's just the beginning of Renault's complex ownership structure.

Renault also owns 44% of Nissan. At the same time, Nissan owns 15% of Renault.

Let's bring in the Germans. I quote here directly from Renault:

"On April 17, 2010 the Renault-Nissan Alliance and Daimler AG announced a broad strategic cooperation that will enable both groups to already realize benefits quickly from a range of concrete projects as well as sharing of best practices. The two groups also announced an equity exchange that will give the Renault-Nissan Alliance a 3.1% stake in Daimler and Daimler a 3.1% in Renault and a 3.1% stake in Nissan."

Next. I'd never heard of AvtoVAZ before, but seems that they are the top Russian auto manufacturer. Renault owns 20% of AvtoVAZ.

Last but not least -- Fiat owns 35% of Chrysler.

I did find this, a chart of auto company/brand ownership, but it's from 2008, so the interest is primarily historical. It does give a nice feel for the complexity of it, though; the only problem is that it doesn't seem to pick up the 378 different auto companies in developing countries that are owned in part by one or the other of the EU-US-China-Japan-Korea cartel.

Checking with our in-house auto industry expert, Dr. Jeff Schultz -- his take is that the player to watch is Renault/Nissan, followed by Ford. He sees these two compnaies as having the best management of any of the major auto firms.

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