Is CAE a Potential Takeover Target of EADS?

As EADS NV, the parent company of European aircraft manufacturer Airbus, continues to discuss the parameters of its plans for acquisitions in the Americas, CAE Inc. (CGT) is increasingly looking like a potential takeover target, according to Chris Murray, CIBC World Markets analyst.

Earlier this year, EADS confirmed that it is in the market for two medium-sized companies in the United States that would provide access to markets that it is not currently exposed and to hedge its exposure against foreign currency. It has since said that it is also looking at other “aeronautical countries” like Brazil and Canada for an acquisition and that it is interested in potentially picking something up in pilot training services.

CAE, the leading manufacturer of full-flight simulators, has been very active in recent years diversifying its portfolio across both the military and civil segments and has also been growing its portfolio of flight training services.

Louis Gallois, EADS chief executive, has also said his company has about an C$11.5-billion war chest set aside for acquisitions or investments.

On Wednesday, in a note to clients, Mr. Murray said:

We would expect that CAE may be one of the companies that may be considered as an acquisition target, particularly if EADS is serious about wanting to diversify into pilot training services.

There is, however, a little hang up around the price. EADS has said it is interested in picking up two acquisitions in the C$1-billlion range. CAE, however, currently has a market cap of more than C$3-billion.

Mr. Murray said:

[CAE] could be interpreted as larger than “medium-sized." Although many training competitors including Rockwell Collins and L-3 Communications are many times larger.