-Caveat Lector-
Now: unless I'm wrong, to make a corporation profitable, there has to be
sales of said corporation's products, no? So, we want to 'stop' war and
conflict but we want sales. A<>E<>R
~~~~~~~~~~~~~~~
>From Int'l Herald Tribune
Paris, Wednesday, January 20, 1999
British Create Rival to U.S. Arms Giants
$13 Billion Deal Sets Back Talks on Broader European Consolidatio
------------------------------------------------------------------------
By Joseph Fitchett International Herald Tribune
------------------------------------------------------------------------
PARIS - A new defense industry giant emerged Tuesday under the leadership
of British Aerospace PLC, for the first time creating a potentially tough
competitor for the American giants that have dominated global arms markets
in recent years.
The company said it had agreed to buy the Marconi military electronics
business of General Electric Co. of Britain for �7.76 billion ($12.82
billion). The resulting company will be the biggest arms manufacturer in
Europe and the third largest in the world.
The decision, though widely anticipated, jolted the politically charged
European defense industry, triggering angry reactions in Germany and France
as a blow to prospects for a pan-European armaments conglomerate. One
outcome of the shakeout, experts said, could be openings for U.S. arms
manufacturers to find new partners in Europe and bolster the near-moribund
trans-Atlantic cooperation on weapons development.
The deal was described by British executives as a step in restructuring the
European industry.
But it was immediately denounced by DaimlerChrysler Aerospace AG of
Germany, which had long counted on merging with British Aerospace and
conceivably with a French partner as well. That would have been the core of
a consolidated European military company, but now a merger of
DaimlerChrysler Aerospace and British Aerospace is ''impossible,''
according to the German manufacturer, which would be dwarfed by the new
British Aerospace.
Thomson-CSF of France, which had also sought to join with Marconi, said of
the deal announced Tuesday, ''It is hard to see how that fits into a wider
European picture.''
The British dealmakers stressed the commercial advantages of the
combination. Citing potential savings and gains in export potential,
Richard Evans, chief executive of British Aerospace, said his company had
gained ''global reach, world-leading technology and the strength to compete
at all levels in the world markets.''
But investors and some analysts did not agree, viewing the purchase price
as too high. BAe shares fell 60 pence to 435 on the London Stock Exchange,
and GEC shares dipped 29 pence to 553.
Both British companies, performing strongly in the 1990s, had manifested
growing impatience with French tactics in slowly privatizing defense
companies while regrouping them before opening the industry to pan-European
mergers.
British executives had complained that Germany, too, seemed bent on
protecting its companies from market forces by restrictive shareholdings.
As a result, the two British companies had separately been on the prowl in
Europe, each picking up smaller manufacturers in recent years.
In particular, the record of Mr. Evans in restructuring British Aerospace
lent credibility to his ambitions to put his company in a position to
compete with the leading American military contractors.
Outside experts said his decision to take an all-British initial step - in
preference to a cross-border merger - could pay off quickly in terms of
competitive performance.
Robin Laird, a U.S.-based defense consultant, said if Mr. Evans ''can
quickly integrate the two corporate cultures, British Aerospace could even
get an edge over the American behemoths that have still not managed to turn
themselves into agile defense performers.''
Last year two of those U.S. giants - Lockheed Martin Corp. and particularly
Boeing Co. - posted disappointing results, partly because they had trouble
digesting acquisitions that had seemed to guarantee continued U.S.
dominance.
The emergence of a tougher British competitor will ''move around the mental
furniture in U.S. management,'' Mr. Laird said.
The strengthened British Aerospace could be a serious rival in some
weaponry and in some markets where the American companies have enjoyed a
near-monopoly - for example, in Asia, when the region recovers
economically. It could even compete in the U.S. market, where it already is
a partner of Lockheed Martin's in development of the Joint Strike Fighter.
In Europe, the move by British Aerospace raised a host of questions about
further corporate alignments.
It had been widely believed that the British government would block a
domestic consolidation and that GEC would resist a deal with British
Aerospace. Until recently, GEC was thought to be pursuing its own
acquisition, perhaps buying Thomson-CSF, its main European rival.
''We have won first-mover advantage,'' said George Simpson, chief executive
of GEC.
As for British Aerospace, in addition to its U.S. alliance with Lockheed
Martin, it is already linked with Saab AB of Sweden in the European market.
In the near future, European restructuring may take second place to profit
for British Aerospace, experts said. Several predicted that the company
would back out of cumbersome joint ventures, notably a planned frigate to
be built with France and Italy. Instead, they said, it will concentrate on
some pending British military contracts, including deals for two large
vessels, essentially container ships, that Britain plans to use as aircraft
carriers.
''I'm at a loss to explain why the British government seems ready to put
itself at the mercy of what amounts to a sole supplier,'' said Francois
Heisbourg, a French military expert with government and industrial
experience. Like other French and German officials who declined to be
quoted by name, he expressed concern about the likely effect of the British
action on European defense integration.
The immediate loser seemed to be DaimlerChrysler. Bolstered by its recent
purchase of Chrysler Corp., the German company finds itself without a
natural partner for its military operations, because either the leading
French or British military contractors alone would overwhelm it. Last
month, amid hints that British Aerospace was leaning toward GEC, German
officials reportedly had secret meetings with French leaders to mount joint
opposition to the British deal, but they apparently found no formula for
helping the company find partnerships offering it the right international
scale.
DaimlerChrysler already has an agreement to build the Eurofighter jointly
with British Aerospace, and the British partner will now dominate that
venture.
Experts also said further delays could now be expected in the ownership
quarrels that have delayed efforts to find a purely commercial footing for
Airbus Industrie, the airliner manufacturer jointly owned by British
Aerospace, DaimlerChrysler, Aerospatiale SA of France and Construcciones
Aeronauticas SA of Spain.
In France, a major new aerospace company has been taking shape around Matra
Hautes Technologies, chosen by the French government to run a new company
comprising parts of a largely privatized Aerospatiale and the fighter
aircraft business of Dassault Aviation. That company may prove to be a
partner for DaimlerChrysler, but experts said Tuesday that future moves
would probably be unclear until other Europeans had had time to assess
British intentions.
~~~~~~~~~~~~
A<>E<>R
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