EADS-BAE tie-up to be credit rating positive

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London
Source: Flightglobal.com
This story is sourced from Flightglobal.com

A potential merger of EADS and BAE Systems is likely to be rating positive due to the "expected improvement in the combined entity's business profile and unlikelihood of deviation from the conservative financial strategies of both existing companies", Fitch Ratings indicates in a research note today. However, the ratings agency warns the transaction faces "numerous and significant obstacles" in the coming months, which may result in the "watering down of the deal and its desired benefits."

The tie-up between the two companies, both rated "BBB+", has "sound industrial logic" as it would create the largest aerospace and defence company worldwide by revenue, says Fitch. It would also have an almost even split between commercial and defence activities, "mitigating the cyclicality of the former and the present pressures faced by the latter."

The combined group could also benefit from "cost synergies, improved pricing power and a reduced foreign exchange mismatch resulting from BAE's large US dollar footprint", says Fitch.

Fitch warns the two companies will require the approval of regulatory bodies in key customer countries and this may prove to be a "long and arduous process, potentially involving the ring-fencing or outright sale of some assets."