Merger Talks Could Result in World’s Biggest Defense Firm

British Aerospace and Britain’s General Electric Co. are in preliminary merger talks that could lead to the creation of the world’s biggest defense company, according to London’s Sunday Times.

BAe, maker of fighter aircraft, has a written agreement with GEC allowing the company’s Marconi defense division to look at commercially sensitive information, the report said. In return, GEC has promised not to use the data to launch a hostile takeover bid if the negotiations fail, an article in the newspaper said.

“All I can tell you is that this is speculation,” a BAe spokesman said. “We don’t comment on speculation.”

The report said there would be several hurdles to overcome before any merger went ahead, including agreement on financial terms and management structure and winning approval from the British Department of Trade and Industry.

If a deal was made, it would be Britain’s largest industrial merger since the creation of British Leyland in 1968, the newspaper said.

It did not give details of its sources.

The Sunday Times said there were many strong arguments for a merger rather than joint ventures to create a British defense giant with global muscle in a shrinking defense market. BAe, a defense and avionics company, and GEC already have close links, with GEC supplying much of the electronics for BAe aircraft. The newspaper said the talks were at an early stage and spoke of “embryonic proposals.”

A merger would allow the companies to overtake Martin Marietta and become the world’s largest military company, with annual sales of about $11.5 billion, and would not result in many job losses, the report said.