The Government waved through British Aerospace’s £7.4bn acquisition of Marconi Electronic Systems last week, reflecting what analysts described as its determination that the group should remain a key player on the world stage.
Trade secretary Stephen Byers ignored advice from the Office of Fair Trading that he should call for a full inquiry into the competition implications of the deal.
Byers admitted that the merger did raise a number of concerns, but stipulated numerous conditions for the deal to go through.
Ruling out a referral to the Competition Commission, Byers said the enlarged group would have to ensure fair dealing for subcontractors by putting all contracts out to competitive tender on a `fair and impartial basis’.
Once the deal goes through, BAe will become the world’s second-biggest defence supplier after Lockheed Martin. But it will have to separate its maritime and aerospace avionics systems businesses. And it will have to appoint a compliance officer to ensure it meets all the undertakings it has made to government.
Both BAe and GEC, Marconi Electronic Systems’ owner, expressed relief at the Government’s approval, adding that they were confident the conditions could be met and that the deal would be completed this year.
The decision was expected but most analysts said the undertakings – aimed at protecting competition for BAe’s avionics and shipbuilding prime contractors and subcontractors – were a good deal for the company.
An upbeat research note from Commerzbank analysts added: `Significantly, no disposals were requested. This is the most favourable outcome that could have been expected and we reaffirm our “buy” recommendation.’
Other analysts speculated that BAe could yet turn its attentions to DaimlerChrysler Aerospace, despite rejecting a merger with the company in favour of Marconi earlier this year.
Both companies would benefit from a tie-up with a US partner, but would need to be truly dominant in Europe to make such a move. `They’re unlikely to do this unless they get together,’ said one analyst.
BAe shares edged up 0.75p to 463.5p after the Department of Trade and Industry announcement. They are expected to continue advancing if results out yesterday (16 September) are in line with forecasts.
Analysts are predicting underlying half-year profits of about £360m, up from last year’s £344m.
`They’ve been so preoccupied by Marconi during the first half that the rest of the business has been overshadowed,’ one analyst said. `We’re expecting good results across the board.’
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