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. Last Updated: 07/27/2016

BAe in Talks to Form Global Missile Giant

LONDON -- British Aerospace is in talks with France's Lagardere and Italy's Finmeccanica to form a world missile-making powerhouse, the Financial Times reported Wednesday.

The newspaper, citing British Aerospace Chief Executive John Weston, said the combination of the three companies' guided weapons operations would create the biggest missile maker in the world after U.S. giant Raytheon.

Weston made his remarks after BAe and Britain's General Electric Co. on Tuesday signed a definitive deal for BAe's pounds 7.4 billion ($11.96 billion) acquisition of GEC's Marconi defense interests.

Analysts said the bolting on of the missile business of Finmeccanica's Alenia - in which Marconi has a half share - to Matra Bae Dynamics, BAe's existing guided weapons venture with Lagardere's Matra unit, was a logical next step in consolidation of the industry in Europe.

Nick Cunningham, analyst with Salomon Bros, said it was positive that the consolidation process was proceeding and had not been disturbed by BAe's acquisition of Marconi's defense interests from GEC.

Combination of the missile businesses would create a group which Cunningham said would be "the world No. 2, only just behind Raytheon, with the potential to be world No. 1."

The European group would take over top slot if a consortium led by BAe Matra won a British contract for development of advanced beyond visual range air-to-air missiles, due to be awarded later this year.

Weston said he believed there were opportunities for consolidation in the European defense and aerospace industry, the FT reported, echoing similar comments by BAe in the past.

Aside from Marconi's bringing of its Alenia interest to BAe, Lagardere's Matra is in the process of acquiring new missile interests through its merging with Aerospatiale as part of the latter's privatization.

Matra BAe Dynamics also has a 30 percent stake in LFK, the missiles unit of Germany's DaimlerChrysler Aerospace, or Dasa.

The only other major European guided weapons business is Northern Ireland's Short Brothers, owned by Bombardier of Canada, the paper said.

Elsewhere, the FT said BAe had made offers for a stake in Spain's state-owned CASA and was awaiting a decision from Madrid.

Weston added that progress on the restructuring of Europe's Airbus group would have to await completion of the Aerospatiale/Matra merger, the paper reported.

BAe's signing on Tuesday of the definitive GEC Marconi agreement started the clock on the companies' pursuit of regulatory approvals for the deal in Brussels, London, Washington and Canberra.