22 Mar 04. BAE Systems and Finmeccanica issued a press release on March 22nd stating that, ‘BAE Systems and Finmeccanica are pleased to announce that they have achieved an important milestone in the Eurosystems transaction’.

The Eurosystems partnership – initially announced with the signing of the preliminary MoU on July 3, 2003 – represents the common will of Finmeccanica and BAE Systems to reinforce their strategic co-operation, through an extension to other business activities. To this aim, a Strategic Steering Council will be established in order to oversee the co-ordination in all relevant areas of common interest, identifying opportunities either within the existing joint ventures or by the formation of new entities.

The companies have agreed in principle the businesses to be included in the transaction and their respective valuations.

The companies will form two joint ventures each under the clear operational control of one of the parents:
* A Systems Integration business, to be majority owned by BAE Systems, with capabilities in information systems and sub-systems, combat management systems, land and naval radar.
* An Avionics business, to be majority owned by Finmeccanica, with capabilities in sensor systems, airborne radar, mission systems, electro-optics and electronic warfare systems.

Recognising the relative sizes of the companies’ communications businesses, it has been agreed that Finmeccanica, through Marconi Selenia Communications, will acquire the relevant BAE Systems communication activities in the UK. These activities will considerably strengthen the capability of Marconi Selenia Communications in the UK.

It has also been agreed in principle that Finmeccanica will acquire the Air Traffic Management activities of Alenia Marconi Systems. The companies believe that these activities will be more fully developed through closer alignment with the related Finmeccanica activities in this area, such as those ones carried out their in the Space field.

The overall turnover of the activities involved in the transaction is around EUR 3.7bn.

Sir Richard Evans and Pier Francesco Guarguaglini, the Chairmen of the respective parent companies, said in a joint statement today: “Achieving this milestone is further evidence of the developing strategic relationships between our two groups. Thanks to Eurosystems, leading global players will be established that can deliver advanced system and sensor solutions to their customers. The agreement announced today represents the major decision point to progress to complete this transaction by mid-year.”

The first question we ask is where does this announcement leave AMS?
The FT reported that BAE has been pushing for a restructuring of its long-running collaboration with Finmeccanica for almost two years, following complaints from City investors that their previous 50-50 partnership, called AMS, was unwieldy and lacked direct managerial control. AMS has for some time been the key first tier supplier of expertise to BAE’s C4ISR bidding process. A source told BATTLESPACE last year that examination of BAE’s C4ISR bids would reveal that AMS provides the major expertise. Will AMS be subsumed in EUROSYSTEMS or will it become a JV within a JV. AMS were unavailable for comment.

What of the Falcon bids? This announcement states that BAE will sell its communications segment to Marconi Selenia rather than turn this into a JV. BATTLESPACE understands that the Falcon decision will have been ultimately made by the time EUROSYSTEMS is in place, thus Marconi Selenia will have control over the IP of both bids? But, how much are they paying, what if the BAE SYSTEMS bid wins, will Christchurch survive. The site has already been partly sold by BAE to the local council to finance rebuilding the other half. The BAE SYSTEMS current C4ISR and CDI (Communication Defence Infrastructure) infrastructure includes plants at Filton, Basildon, Portsmouth and Christchurch, not forgetting