Is EADS Interested in CAE Inc.?

Not one to let a rationale idea go unnoticed (see prior post “Takeovers to come” April 15, 2007), CIBC WM put out a brief drive-by research note yesterday which touched on the notion that EADS might be interested in acquiring CAE Inc. (CGT):

Canadian Aerospace Update

Bombardier released its F2008 year-end summary of orders, deliveries and aircraft in backlog. The company received 698 orders and delivered 361 aircraft, compared to 363 orders and 326 deliveries in F2007. RJ backlogs continue to grow as the company announced several new orders.

As per Reuters, in part of a memo to employees, EADS mgmt indicated one of their top 10 objectives in 2008 is to “propose two acquisition projects in the field of defense, security or services to the board, at least one of which is in the U.S.” CAE would meet the majority of the initial criteria.

Both Vector Aerospace and Northstar Aerospace announced the appointment of new senior officers. Vector announced the hiring of Declan O’Shea as President and CEO while Northstar appointed Glenn Hess as the company’s President and CEO.

Vector and Northstar reported Q4 results with a number of one-time items. After adjustments, Vector’s results were in line with our expectations. Northstar began to demonstrate revenue growth this quarter that we believe will provide the highest future organic growth of the suppliers.

The idea was prompted by a March 9 Reuters news story where EADS sent an internal memo to staff outlining 10 key objectives for 2008.

The deal idea makes some sense, although CAE shares have treaded water since the story hit the wire. Here’s your chance to try the risk-arbitrage game.