Spotlight on Germany as EADS, BAE inch towards deal

BERLIN/PARIS | Fri Oct 5, 2012 11:45am BST

(Reuters) - EADS and BAE Systems have edged closer towards winning political backing for a $45 billion (27 billion pounds) merger to create the world's biggest arms group amid positive signals from Britain and France, but German misgivings over control is a big obstacle, sources close to the talks said.

A number of potential stumbling blocks have emerged since the proposed tie-up between the Airbus manufacturer and the British defence group was announced last month. These include conflicting political interests in Britain, France and Germany, as well as some shareholders' dissatisfaction with the terms.

BAE Systems plc and EADS N.V.

Termination of talks regarding the
possible merger of BAE Systems and EADS

Following the announcements made by BAE Systems plc ("BAE Systems") and EADS N.V. ("EADS") on 12 September 2012 in relation to a possible combination of their businesses through a dual listed company structure, BAE Systems and EADS announce that they have decided to terminate their discussions.

BAE Systems: Where now for the UK's biggest manufacturer?

Amid recriminations over BAE Systems' failure to secure a tie-up with EADS, one question looms large. What does the UK's biggest industrial company do now?

SocGen's answer to the question:
"The big question is where does the group go from here?
In the press release announcing the termination of talks BAE management say that ‘our business remains strong and financially robust’ and ‘we remain committed to delivering total shareholder value and look to the future with confidence’. But what does this really mean and how will they deliver total shareholder value? The group will most likely revert to the original plan of dealing with defence cuts in the US and UK by reducing the cost base. This is hardly likely to deliver value. We continue to argue that the group should unlock value by demerging or selling off the US business. We note with interest that Mike Turner, the former CEO of BAE, also supports this thesis (FT interview – 8 October 2012), arguing that the US business would ‘realise a significant sum of money’.
How we value the stock - We reiterate our ‘Hold’ recommendation and our 350p target price. BAE must clearly be viewed as ‘in play’ now. Our TP assumes the mid-point of a fundamental valuation of 310p (based on peer ratios) and our take-out price of 390p, including a 25% premium for a bid for the group or parts of the group. Risks to TP: BAE divests some businesses (+); US defence cuts more severe than the 2% p.a. assumed (-). M&A is now clearly a swing factor."

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Wee bounce here today of 200DMA in at 312.0, won't hang about if proves to be a dead cat bounce.

Stop to entry for risk free trade.

Struggling a wee bit to get over and stay over 320.0 sincerely hope our Dave does the business.

Went back in long @ 304.6 on 19th. Strong resistance @ 320.0 but if it can break through 350.0 could be a good target for year end. Stop to 312.0 to lock in profit if it goes tits up.

Stop to 320.0 to lock in+ 15.4

Stop to 325.0 to lock in 20.4

Stop to 330.0 to lock in 25.4

Stop to 335.0 to lock in + 30.4

HMS Audacious: MoD announces £1.2bn submarine contract

A new attack submarine, HMS Audacious, has been commissioned by the Ministry of Defence in a contract worth £1.2bn.

The BAE Systems deal, which will secure 3,000 jobs at Barrow-in-Furness in Cumbria, will progressively replace the Trafalgar Class currently in service.

A further £1.5bn has been committed to the remaining three Astute Class submarines being built, the MoD said.

Stop to 340.0 to lock in 35.4

BAE warns failure to agree Typhoon price with Saudi might hit profits

British defence giant BAE Systems warned profits might be lower than expected in 2012 because it has still failed to agree a price with Saudi Arabia for its Typhoon fighter jets despite securing the order five years ago.

The FTSE 100 company said “issues remain to be resolved before contract pricing, acceptable to all parties, can be agreed” on the programme to supply 72 jets to the Royal Saudi Air Force. It is a government to government deal known as “Salam” and worth roughly £4.5bn in total.
BAE said that if an agreement on price was not reached by the time it publishes its full-year results on February 21, the group’s underlying earnings per share would be about 3p per share lower than previously expected.
Analysts had been expecting earnings per share of around 40p, and a dividend of around 19p for the full year.
“The dividend wouldn’t be affected unless there was more and more slippage in earnings,” said Edward Stacey, analyst at Espirito Santo.
Mr Stacey said that despite the warning, he believed the Middle East would be a good growth market for BAE and has a “buy” recommendation on the shares.

Shares fell 1pc on Wednesday.
“Acceptable pricing terms remain the group’s driver to such an agreement, not the timing of the settlement,” BAE said. The Salam deal was originally struck before the global financial crisis took hold when the economic backdrop was far stronger.
BAE finalised a deal with Saudi in 2007, and delivered a total of 24 Typhoon aircraft between 2008 and 2011. It is thought that the price negotiations being thrashed out are partly retrospective.
The company said “all parties remain committed to the programme” and said building of the aircraft for the Royal Saudi Air Force continued, with delivery expected to start again in 2013.
BAE said it had made progress on some of its other work in Saudi, including negotiation on contracts to support and provide equipment under the Saudi British Defence Cooperation Programme for the next five years, which are expected to be signed before the end of 2012.
In May, BAE won a £1.6bn contract to support Royal Saudi Air Force training, which includes the supply of 22 new Hawk trainer aircraft, 55 Pilatus PC-21 aircraft, and other training equipment.
Last month David Cameron embarked on a major push to secure new Typhoon orders for BAE while on a three-day visit to the Middle East. It is hoped that Saudi will place what Downing Street sources described as a “substantial” order for more jets, on top of the 72 already agreed.
It is understood BAE is close to securing an order for 12 Typhoon jets from Oman, with hopes than an agreement will be reached by the end of the year.

Re Contract

BAE Systems and the Government of the Sultanate of Oman have entered into a contract for the supply of Typhoon and Hawk Advanced Jet Trainer aircraft to the Royal Air Force of Oman. The contract, valued at approximately £2.5 billion, provides for the delivery of 12 Typhoon and 8 Hawk aircraft starting in 2017.

BAE Systems is the prime contractor for both the provision of the aircraft and the agreed arrangements for in-service support.

Great News..

Closed (spreads) @ 342.8 + 38.2

Nice one squirrel.

Probably being greedy, back in long on the spreads @ 350.4 if it can breach strong resistance @ 360.0 next target 380.0 pure punt. Tight stop @ 344.0