U.S. aerospace giant Boeing and Brazil’s Embraer confirmed they were in talks “on a possible combination” but cautioned that there was no guarantee of a deal.
Any transaction would need to be approved by the Brazilian government and regulators, and Embraer’s shareholders, the companies said in a joint news release on Thursday, December 21.
The Brazilian government has a so-called golden share in Embraer, giving it veto power over any takeover.
Embraer had a market value of about $3.7 billion on Thursday morning.
The Wall Street Journal first reported the talks earlier Thursday, citing unnamed sources.
The report said the parties discussed a deal that would see Boeing pay a “relatively large premium” for Embraer, but that talks are on hold as the two sides await word on the Brazilian government’s view of the deal.
According to the WSJ, Boeing is willing to protect the Embraer brand and to ensure any deal protects the Brazilian government’s interest in Embraer’s defense business.
Embraer is perhaps best known for its A-29 Super Tucano turbo-prop light attack aircraft. The U.S. Air Force ordered six more A-29s for the Afghan Air Force in October, and the Philippines ordered six A-29s in November. The U.S. Air Force is also evaluating the American-built Super Tucano in its Light Attack Experiment.
Brazilian president says “Embraer will never be sold”
The Folha de Sao Paulo newspaper reported that Brazilian President Michael Temer already ruled out a takeover of the Embraer, one of Brazil’s flagship companies.
“Embraer will never be sold under my government,” he was quoted as saying at a meeting with the defense minister and head of the air force.
Brazilian officials were reported to have been taken by surprise by the Wall Street Journal story on the merger talks.
A deal between the two companies would build on their existing alliance on the KC-39 military plane and would enable Boeing to fill in a gap its fleet in regional single-aisle planes.
Embraer was formed by the Brazilian government in 1969 and privatized in 1994 in a process that granted the Brasilia “golden shares” with some veto rights.
U.S.-traded shares of Embraer shot up following the report, jumping 21.9 percent to $24.38, while Boeing dipped 0.6 percent to $296.17 in afternoon trading.
Boeing Bombardier battle
The merger talks come after Boeing rival Airbus signed an agreement this fall to take a majority stake in production of narrow-body planes made by Canadian company Bombardier. Those planes are at the center of an ongoing U.S.-Canada trade dispute sparked by a Boeing complaint against Bombardier.
An Embraer transaction would give Boeing a portfolio of planes that could compete for some of the same business as the Bombardier aircraft.
Embraer in 2016 notched $6.2 billion in revenues, with 56.7 percent from the commercial business, 27.8 percent from executive jets and 15 percent from defense and security, according to an Embraer filing to the US Securities and Exchange Commission.
Boeing’s revenues in 2017 were $94.6 billion.
With reporting from AFP