American aerospace behemoth Boeing Co. (BA, Financial) has approached Brazilian aircraft manufacturer Embraer SA (ERJ, Financial) with a potential acquisiton proposal. The deal, if successful, can be a boon for Boeing as its range of offerings will be widened.
Bird’s-eye view of the case
This is a strategic move by the company as the potential deal comes two months after Airbus SEÂ (EADSY, Financial) acquired a majority stake in Canadian aerospace company Bombardier Inc. (BDRAF, Financial). The Brazilian government’s consent is needed for the deal to happen, however. The government holds the veto power in regard to acquisitions, so it will challenging for the deal to move forward. According to Reuters, the Brazilian government is willing to enter a partnership, but any deal that results in the sale of the country’s aviation giant will not be considered. Boeing approached Embraer twice with a bid more than 10 years ago, but both offers were declined due to the Brazilian government’s veto power.
The Wall Street Journal confirmed Boeing is willing to pay a huge premium to the market value of roughly $3.7 billion to secure the deal. If successful, both companies can operate well with each offering complementary rather than overlapping products.
This could be Boeing's biggest acquisition since it purchased McDonnell Douglas Corp. in 1996 for $13 billion. If the deal occurs, Boeing will have Embraer’s extensive military airplane and corporate jet businesses as well as its commercial aviation unit under its umbrella. However, even a partnership with Embraer will benefit the company.
Last word
Boeing and Airbus are the leaders in the aircraft market. Boeing’s talks with Embraer and Airbus’ agreement with Bombardier would wipe out competition from not only existing aerospace players but newcomers like Russia’s Sukhoi. Currently, Brazilian President Michel Temer does not seem interested in approving the deal. If the deal does go through, both Airbus and Boeing would be on an even playing field. If not, the European aerospace company would have a competitive advantage over Boeing.
Disclosure: I do not hold any positions in the stocks mentioned in this article.
