Shares in British Aerospace lost 15% of their value last week after the announcement of its £7.7bn acquisition of GEC’s Marconi defence electronics and shipbuilding subsidiaries.
The fall reflected concern in the City that BAe had paid too much for Marconi. The deal values Marconi at about £6.2bn with the £7.7bn price tag including £1.5bn of net debt.
Some analysts have also expressed fears that the deal was ‘too British’ and effectively scuppered hopes that BAe would merge with DaimlerChrysler Aerospace (Dasa).
The fall in BAe shares, down from 493.5p before the deal was announced last Tuesday to just 419p at the end of the week, saw the stock lose all the gains it has made in recent weeks amid hopes of an imminent tie-up with Dasa.
Earlier this month GEC effectively gatecrashed talks between BAe and Dasa by presenting a BAe/Marconi merger to replace the pan-European alliance everyone had been expecting.
Talks aimed at striking a three-way deal between BAe, Dasa and GEC broke down late last year because of opposition from DaimlerChrysler’s chairman Jurgen Schrempp. But a spokesman for Dasa said the group’s final goal is still the creation of a pan-European defence company.
Under the terms of last week’s merger, GEC shareholders will gain a 37% stake in BAe.
A BAe spokesman said the company expects the acquisition to enhance its earnings within two years.
It also expects to make cost savings of about £275m by 2002. In the first year, savings are expected to reach £40m, increasing to £150m in the second, although reorganisation and restructuring will cost £200m.
Dasa, meanwhile, made it clear last week that the BAe/Marconi merger would pose a serious obstacle to future British involvement in European defence industry consolidation.
And Thomson-CSF, the French electronics group that was widely tipped as a potential parent for Marconi, showed irritation at having been beaten by BAe.
Thomson-CSF chairman Denis Ranque said the merged group would make cross-border cooperation with other European partners more difficult.