Two sources familiar with the merger plans said the U.S. government might seek to carve out some BAE business and put it under a proxy agreement, but gave no further details.
Rob Stallard, an analyst with RBC Capital Markets, said BAE’s strong relationship with the U.S. government was the product of a slow and deliberate strategy.
“BAE’s moves to become a significant presence in the U.S. defense market have been clever. Rather than trying to do a mega deal, which could have been blocked, it has done a series of smaller acquisitions that, put together, add up to a sizeable portfolio,” said Stallard.
Washington’s close ties with Britain also played a role in BAE’s naturalization as a quasi-American corporate citizen, as has its significant role on the Pentagon’s biggest weapons program, the $396 billion F-35 Joint Strike Fighter, analysts said.
BAE’s first big acquisition was to buy Sanders Associates, which makes electronic warfare equipment, from Lockheed Martin Corp (LMT.N) in 2000, followed by the 2005 acquisition of United Defense Industries, maker of the Bradley Fighting Vehicle. Then in 2007, it acquired Armor Holdings, the largest maker of armor for military Humvee vehicles.
Over the years, it integrated those acquisitions and established BAE as a powerful brand, analysts said.
BAE generated $14.4 billion in revenues in the United States last year, ranking it among the Pentagon’s top 10 contractors. During the height of the Iraq and Afghanistan wars, it rose to the No.5 spot due to its work on a variety of ground combat vehicles, including mine-resistant trucks.
EADS’ U.S. sales totaled $1.4 billion last year.
“BAE’s employees are almost all American, their board members are almost all American and their relationships are almost all American,” said Loren Thompson, a Virginia-based defense consultant and sometime adviser to BAE’s U.S. unit.
He said U.S. military officials had a positive view of BAE given its successful execution on many big programs. He said the success of a merged EADS-BAE group in the United States would depend on the structure of the special security deal.