13 Sep. 2012: Proposed merger would create the world’s largest arms and military services company
The statement to the London Stock Exchange made on 12 September 2012 by BAE Systems and the European Aeronautic Defence and Space Company (EADS) on the subject of a proposed merger of the two companies raises a number of interesting questions within the context of the world arms and military services industry.
If approved, the merger would make the BAE Systems/EADS combined entity the world’s largest arms and military services company.
According to the SIPRI Top 100, which lists the world’s 100 largest arms-producing and military services companies (excluding Chinese companies), in 2010 BAE Systems was the second largest arms-producing and military services company, with EADS ranked seventh. Had the combined company existed in 2010, its total arms and military services sales would have been $49.2 billion, putting it ahead of Lockheed Martin as the largest company in the SIPRI Top 100.
It is likely that a company of this size would have a wide-reaching impact on European arms and military services industry policies, as well as on weapons procurement.
Like many other companies in the SIPRI Top 100, both BAE Systems and EADS currently pursue corporate strategies to maintain and expand sales in markets outside the United States and Western Europe. These strategies have been developed in response to proposed and actual military spending cuts in the Global North.
The significance of the proposed merger is that it would provide each company with access to the other’s already established footholds in Australia, Brazil, India and the Middle East.
However, the merger also raises a number of questions. What will it mean for intra-European collaboration on programmes, especially those in which BAE and EADS are currently competitors (e.g. the development of European unmanned aircraft systems)? What are the implications for vertical and horizontal mergers and acquisitions within Western Europe and the USA, as well as between Western Europe and the USA?
It is difficult to predict the future structure and makeup of the world’s arms and military services industry. However, it is interesting to observe that while both companies (especially BAE) have a US presence, this proposed merger seems to run counter to the USA’s open discouragement of mergers among the top US-based arms and military services companies, as discussed in SIPRI Yearbook 2012.
Dr Susan T. Jackson is a Senior Researcher and Head of the SIPRI Arms Production Project.