UTC's Raytheon Deal Shows Airbus-BAE Merger of Equals Might Work
(Bloomberg) -- A merger of jetliner maker Airbus SE and defense giant BAE Systems Plc could begin to look more attractive in light of the metrics underpinning United Technologies Corp.’s agreement to buy Raytheon Co.
Terms of the all-U.S. deal announced Sunday suggest investors are “agnostic” about the relative outlooks for the civil aerospace and armaments industries, Jefferies International analyst Sandy Morris said in a note on the combination.
That’s in contrast to skepticism about future defense budgets that helped scupper a proposed Airbus-BAE deal in 2012, and suggests that a “merger of equals” might not be impossible in future, Morris wrote. BAE’s price-earnings valuation, which trails behind Airbus, could also be boosted if Europe agrees to build a new warplane developed from the current Typhoon, in which the U.K. company is a key partner, he said.
A merger with BAE would turn Airbus into a broader aerospace group like Boeing Co., with defense revenues helping to smooth out bumps in jetliner demand. The 2012 deal was also scuppered by concerns about how it might impact BAE’s access to U.S. markets, given state holdings in Airbus, and Morris didn’t say if that would still present a barrier or how Brexit will affect things.
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