EADS keeps sights firmly on expansion in U.S.

Reuters

EADS is disappointed over the collapse of its merger talks with BAE Systems Plc, but remains "undeterred" in its drive to expand in the U.S. defense market, Sean O'Keefe, chief executive of EADS' U.S. unit, said in an interview.

"The fact that this did not work its way to completion ... does not mean there will be any slowdown of any effort to look more broadly at other opportunities that may come along," he told Reuters on Wednesday.

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O'Keefe said a possible merger with BAE Systems was a "tremendous opportunity" that brought BAE and EADS very close to an agreement, but the companies ultimately decided that challenges from respective governments involved in EADS could not be resolved.

"We knew, going in, that it was going to be an extremely difficult challenge," O'Keefe said shortly after the companies called off the merger on Wednesday.

The combination would have created the world's largest defense and aviation group. The companies pinned the blame on Germany for wrecking the $45 billion deal.

BAE said it had become clear that the interests of the French, British and German governments could not be reconciled with each other or with the objectives that BAE and EADS established for the merger.

O'Keefe, a former U.S. Navy Secretary and NASA administrator, said the parties came "awfully close" to a deal, and said he would not rule out its resurrection in the future, if issues raised by the involved governments could be addressed.

"This was not a concern or any difficulty that arose between the two companies. We reached agreement. If anything, the relationship with BAE Systems corporate is stronger than ever," O'Keefe said, leaving open the possible of future collaborations short of a merger.

O'Keefe, speaking at a conference on women in the defense business, noted there had been discussions about including BAE Systems when EADS was originally formed in the late 1990s.

"Much of where we are today is just another chapter in a long effort ... on the part of both companies through the course of the past 15 years," he said.

Many U.S. defense companies have said in recent months that uncertainty about additional U.S. budget cuts has caused a slowdown in merger and acquisition activity, but O'Keefe said that was not a factor in EADS' thinking.

He said the proposed merger had not been prompted by the budget concerns, and that the company remained undeterred in seeking takeover targets in the United States.

He said U.S. officials repeatedly and consistently told him that they were keeping an open mind about the possible merger and saw it a possible "opportunity for looking at competitive market alternatives."

(Reporting By Andrea Shalal-Esa; Editing by Gerald E. McCormick and Jeffrey Benkoe)