TPT November 2012

Global Marketplace

the two companies topped $96bn in 2011. Boeing’s revenue was nearly $70bn. › Of course, any deal faces regulatory scrutiny by the European Commission and also, perhaps, by the US government. But a merger of BAE and EADS (for European Aeronautic Defense and Space) could have prospects for success beyond the average. Ms Clark recalled the two companies’ history of collaboration. They are partners on a number of projects, including the Eurofighter jet. BAE also held a direct interest in the Airbus consortium for many years before selling it back to EADS in 2006. Steel Nippon Steel’s expansive joint venture with Australia’s BlueScope Steel: a ‘nice niche fit’ for the building sector “[13 August] marked the quietest day of Tokyo stock trading this year, as the market was becalmed by the start of the traditional Obon summer holiday. But for Nippon Steel, there are no dull days.” “JapanRealTime” blogger Kenneth Maxwell of the Wall Street Journal was referring to a fresh foray into overseas markets for the biggest Japanese steelmaker by output – already just seven weeks away from a formal merger with Sumitomo Metal Industries Ltd to form the world’s second-biggest steelmaker by output after ArcelorMittal. Nippon Steel Corp then announced that it will form a $1.4bn joint venture with Australia’s BlueScope Steel Ltd to make construction materials and steel sheets for use in home appliances to be sold in Southeast Asia and North America. Mr Maxwell observed that the benefits were more immediately clear for BlueScope, which gained $540mn in cash from the deal. That pushed up its shares 35 per cent, as the cash injection eases the company’s debt burden. For its part, cash-rich Nippon Steel (stock market value: close to $15bn) will be able to meld its know-how in metallic coatings for everyday products like refrigerators with BlueScope’s expertise in the construction sector. (“Nippon Steel’s Deal a Niche Fit,” 14 August) Broadly welcomed as a “nice niche fit” by analysts consulted by Mr Maxwell, the deal was also seen as providing yet another example of a Japanese giant going abroad for growth, this time to a part of the world where incomes are rising quickly. The expectation is that BlueScope’s existing networks in Southeast Asia should help get business there. UBS analyst Atsushi Yamaguchi concurs. “Nippon Steel has been trying to expand its reach in the construction business,” he told the Journal . “With the deal, it bought time to develop its business in countries including Thailand, Vietnam and Malaysia.”

Aerospace The potential merger of BAE Systems and EADS would ‘change the European defence market beyond recognition’ In mid-September, the two biggest European aerospace and defence companies said they were in discussions about a merger which, if it comes to pass, would create an industry behemoth with a combined market value of nearly $50bn. EADS, the parent of Airbus, and BAE Systems are looking to team up as their respective industries become increasingly competitive. Writing from Paris in the International Herald Tribune , Nicola Clark pointed out that, while government contracts provide steady revenues, large European countries and the US are pulling back on their military spending. This weighs on London-based BAE, one of the world’s leading defence contractors. For its part, Airbus (Toulouse, France) is seeing somewhat improved prospects for passenger airlines, its main customers, but only after difficult times. (“BAE Systems and EADS Say They Are in Merger Talks,” 12 September) “These are complementary businesses,” Richard Aboulafia, an aerospace analyst at the Teal Group (Fairfax, Virginia), told the Herald Tribune . “This is a way of achieving balance from the defence side.” Ms Clark noted that the two big companies seemed to be taking their cues from competitors. With its acquisition of McDonnell Douglas in 1997, Chicago-based Boeing sought a more reliable income stream to offset the boom-and-bust cycles in passenger travel. After the terrorist attacks in 2001, Boeing’s rapidly growing military business helped buffer it from a collapse in the demand for passenger jets. But, wrote Ms Clark, the dynamic has shifted over the last several years: “Boeing’s commercial business has soared while its military operations have been hampered by budget cuts in many countries. BAE, which is primarily a military company, is facing the same belt-tightening in its main markets, as Airbus has experienced a surge in orders.” Presumably a merger would help both firms contend with such volatility. Airbus accounts for about 65 per cent of EADS revenue. After the deal, according to a source close to the merger discussions, commercial aerospace would account for 53 per cent of revenue, with 47 per cent coming from military and security. › On the face of it, the merger would create one of the largest aerospace and defence organisations on the planet, Ms Clark was told by Guy Anderson, a senior defence industry analyst with IHS Jane’s in London. The combination would, he asserted, “change the European defence market beyond recognition”. As to what it might mean in money terms, Ms Clark noted that the combined company would rival Boeing. Annual sales at

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November 2012