BAE Systems Plc (BA/) Chief Financial Officer Peter Lynas is favorite to hold the same post at the enlarged group should a merger with European Aeronautic, Defence & Space Co. (EAD) succeed, people familiar with the discussions said.
BAE Chief Executive Officer Ian King would lead the combined defense business, while Linda Hudson would remain in an equivalent position as head of BAE Systems Inc., the U.S. subsidiary of the London-based company, said the people, who asked not to be identified because the appointments have not been announced. A representative for BAE declined to comment.
Keeping the BAE executive trio intact would give the U.K. defense company more heft in its combination with larger EADS. While EADS CEO Tom Enders has said he wants to build a company divorced of government ties, he must draw up a politically palatable merger plan to gain state backing. The U.K. government can veto a change in ownership of BAE, which would be the junior partner in the merged entity with 40 percent.
“The two companies are making a case, a strong case, in favor of this merger,” U.K. Deputy Prime Minister Nick Clegg said in an interview with Bloomberg Television, adding that there are also “concerns” about the transaction. “I personally have always been in favor, over time, of greater consolidation in the European defense industry. I think that’s the trend and has been for a long period of time.
While neither company has publicly commented on the composition of key management, Enders is expected by analysts to remain at the helm, with Fabrice Bregier retaining his post as CEO of the Airbus SAS subsidiary. EADS and BAE have said the company would have a dual listing, and keep the U.S. business separate to comply with U.S. security clearance.
Lynas, whose testimonial on the BAE website states that “you’re only as good as the people you work with,” took over as finance director of BAE at the end of 2010. BAE Chairman Dick Olver hasn’t commented on his role in a future company, while EADS Chairman Arnaud Lagardere has said previously that he wants to eventually sever ties with EADS, in which his namesake publishing company owns 7.5 percent.
Naming Lynas as CFO would force current EADS Finance Chief Harald Wilhelm to take a step back. Enders consolidated financial oversight of EADS and Airbus, its largest unit, this year by giving Wilhelm both positions. Almost a decade Lynas’s junior, Wilhelm may return as CFO later should the role go to the BAE executive for now, one of the people said.
King and Lynas both worked at Marconi Electronic Systems, which merged with British Aerospace Plc in 1999 to create BAE in its current form. BAE has lost about a third of its value under King, who took over in September 2008. At that time, BAE trumped EADS by market value, a relationship that has since been reversed. The U.K. company has cut about 17,000 jobs under King’s tenure as orders in Europe dried up.
“The beauty of the transaction for BAE is that it is losing itself in a bigger group,” Pierre-Yves Gauthier, head of strategy at Paris-based Alphavalue said in a telephone interview. “Their long-term outlook is not strong.”
BAE and EADS run their U.S. companies under special boards to get Pentagon security clearance. The security arrangements the U.S. will insist on for a combined company will not emerge until after a firm merger proposal is submitted for review.
The two companies have until Oct. 10 to spell out merger plans or ask for an extension. Hudson, in a note to employees, said that the deal could take months to complete.
“Such deals are complex business transactions -- internationally even more so,” she said.
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