BAE And EADS Essay Example | Topics and Well Written Essays - 2000 words

BAE And EADS - Essay ensampleOn the flip side, the deal would lead to political among other complexities. This report will give an abridgment of the issues surrounding the proposal for fuser of the two companies. Strategy and pauperism analysis Invesco criticized the proposed deal citing poor terms, sound out interference and lack of strategic underlying principle. The problems that BAE has raised includes the share buyback programme , possible deviation from its generous dividend payout as well as the doubts imposed by inviting Germany and French stakeholders in the deal. The sharp fire in the defense spending by the U.S. is a big reversion for EADS and BAE, but BAE is likely to jump out most because it is deeply exposed to the U.S. defense market. Furthermore, BAE is experiencing a serious reduction in the demand for the equipment it supplies for the US military, which are currently preparing to pull out from Afghanistan. Additionally, the firm is likely to suffer a big bl ow following the down-turn of the demand for the Eurofighter Typhoon fighter jet (Ranscombe, 2012). Figure 1 EADS DPS trend since 2007. As shown from plan 1 above, recently EADS has paid exceedingly high rate of dividends, which could be seen as a major motivation for BAE shareholders to enter the proposed merger (Le Figaro 2001). Stock market response analyses based on share movement and synergy multiples During the trading following the announcement on 12 September, the shares of BAE jumped by 10% to 336.1 pence ($5.41), as shown in figure 3 below. However, the shares of EADS plummeted by more than 10% following the announcement (shown in figure 2). Later, on 13 September, the shares of BAE fell back to just 2% above the level before the rumors emerged that the two companies were planning to merge (Norton-Taylor, 2012). Figure2 EADS share movement shortly before and shortly after the announcement writer Thomson Reuters via FT Markets information Figure 3 EADS share movement sho rtly before and shortly after the announcement Source http//markets.ft.com When the reports hit news lines that there was a potential merger between the two companies, initially, the investors burst into a euphoria that affected the movement of the prices of the shares of the two companies. However, after uncertainty took shape, BAEs shares drafted following a unfaltering post-announcement rally, while the shares at EADS were moving lower (Petroff, 2012). On 12th September following the announcement, the shares of BAE were trading 1 portion lower at 338.90 pence, which was in line the decline in the wider market. As seen from figure 2 and 3 above, the investors reaction was swift, especially on Thursday when the shares of EADS fell by about 10 percent to 25.15, while those for BAE gained significantly on Wednesday following the news that the deal is simmering, going up to 337.10 pence in London. synergism analysis The investors will have to ask themselves several questions in ord er to establish whether the merger is a good idea, including (1) why is such a huge merger is the best means of solving the problems the item-by-item companies are facing and also open opportunities for them? (2) Is BAE, which is a top US military contractor, the best company to help EAP achieve