Qioptiq logo Raytheon

MBDA PREPARES FOR CONSOLIDATION – WHERETO BAE?

16 Mar 06. James Boxell of the FT reported that MBDA, Europe’s leading missile maker, is to cut 10 per cent of its 10,650 staff and embark on a fresh wave of cross-border consolidation.

The company’s three joint owners – EADS, the Franco-German defence group, BAE Systems of the UK and Italy’s Finmeccanica – are also in preliminary talks that could lead to EADS buying out its partners. MBDA’s sales have grown from €1.8bn ($2.2bn) in 2002 to €3.2bn in 2005, but European demand for missiles is expected to fall over the next few years.

The company is in negotiations with unions in France and the UK, over job cuts expected during the next five years. Marwan Lahoud, MBDA’s chief executive and a rising star in European defence, would not comment on possible talks between EADS, BAE and Finmeccanica. “When you go to a department store to buy a washing machine, you speak to the seller, not the washing machine.

“We are quite proud because we are wanted but whether BAE or Finmeccanica want to sell is a matter for them,” he said. However, MBDA is understood to prefer the idea of a single owner because it would reduce conflicts of interest with shareholders. A new structure could also cut costs and help cross- border integration. Noël Forgeard, the French co-chief executive of EADS, recently said his company was ready to buy out its MBDA partners. But bankers have not been consulted and any process is expected to take at least 18 months. EADS and BAE each own 37.5 per cent of MBDA and Finmeccanica 25 per cent.

A sale to EADS would be challenging politically, with cross-border European defence deals difficult to pull off. The British government will be sensitive about any BAE exit from MBDA, although an industry insider said MBDA had established a strong relationship with the UK Ministry of Defence.

The MoD has offered MBDA protection from competition while it restructures its UK business because of a projected 40 per cent fall in demand for missiles in the next five years.

MBDA is integrating UK and French operations. It will also look to re-open talks with Diehl, the German missile group, which would complete consolidation of the German sector after MBDA’s purchase of LFK. EADS is keen to play a role in the consolidation of the European defence and aerospace sector. It would like to buy the 20 per cent of Airbus that it does not own from BAE and has made unsuccessful overtures to Thales, the French defence electronics group. BAE keeps shareholdings under constant review but has not said it wants to sell its MBDA or Airbus stakes.

FT Deutschland reported that MBDA is seeking to take over the missile division of Diehl, the German industrial group. The Diehl missile division employs around 1,600 people and posts turnover of approximately 300m euros. The plans see the continuation of MBDA’s acquisition trail. The group recently acquired LFK, the German missile and rocket manufacturer, from European aerospace and defence group EADS. MBDA announced that it had held talks with Diehl on creating a German missile house. There is dissent, however, on who would control any such company. MBDA said that it had called for strategic control and that it wished to prevent the Diehl division falling into enemy hands. It also questioned whether there were enough projects in Germany for two rival firms.

With this MBDA cash and the much predicated sales of its Airbus stake, BAE Systems will be awash with cash to spend in a major acquisition. In our last issue of 2005 we suggested that a company such as CSC would be a likely target.
(See: BATTLESPACE UPDATE Vol.7 ISSUE 50, December 21st 2005, 25 YEARS ON – TIME FOR REFLECTION).

However, the Guardian suggests that BAE is looking at L-3 as its next bid target.

It stated that ‘BAE Systems, Britain’s leading arms contractor, is considering a $10bn(£6bn) bid for L3, the New York-based defence electronics company, in a move to shore up its position in Ame

Back to article list