In an audacious and rather unexpected move, BAE Systems and European rival and regular partner EADS have announced plans to merge. On paper, the combined deal creates a military and aerospace powerhouse capable of taking on Boeing in its own backyard. Yet this is far from a done deal. Significant obstacles will take time to navigate and, while not insurmountable, should make investors think twice before buying BAE.
For the British company, the benefits of access to much-coveted commercial aerospace work are clear. It could also use EADS's strong balance sheet for a spending spree in the high-growth cyber and security sector. Deutsche Bank has crunched the numbers and "guesses" at net synergies of €300m by 2014, worth 20p a share which, in isolation is rather modest. Reassuringly, barring any collapse in earnings, BAE promises to repeat this year's dividend in 2013.