The Wall Street Journal reported Thursday that Boeing and Embraer have been discussing a deal involving "a relatively large premium for Embraer," which has a market value of about $3.7 billion, citing unidentified people familiar with the matter.
The newspaper reported that the talks are on hold as the parties consult the Brazilian government on whether it would approve any combination. The report did not say when talks began or how long they have been on hold.
"The two companies are engaged in discussions regarding a potential combination, the basis of which remains under discussion," Boeing and Embraer said in a joint statement Thursday. "There is no guarantee a transaction will result from these discussions. ... Any transaction would be subject to the approval of the Brazilian government and regulators, the two companies’ boards and Embraer’s shareholders."
Any deal will be a challenge because the Brazilian government has a so-called "golden share" in Embraer that gives it veto power over such a deal, the Wall Street Journal said.
Embraer is a major powerhouse in Brazilian industry, and it’s far from guaranteed that country's government would approve a takeover.
For that reason, the newspaper reported, the chances of the talks ending with no deal are greater than in a typical merger negotiation. Indeed, some of the people the newspaper interviewed "cautioned it is unlikely the talks will be revived."
To help secure the government's blessing, Boeing is reportedly willing to take steps to protect Embraer’s brand, management and jobs, one person told the newspaper.
Boeing reportedly is also willing to structure a deal in a way that would protect the government’s interest in Embraer’s defense business.
Embraer, based in Sao Paulo, says it is the world’s third-largest commercial jet manufacturer and has around 18,000 employees. The company makes regional jets in the 70- to 100-seat range, which are heavily used on routes with where airlines don't need larger Boeing or Airbus passenger airplanes to meet demand.
Boeing's line of passenger jets doesn't include a regional jet, which may explain why Boeing is eager to expand its offerings.
Another reason is more strategic. Airbus recently took a majority stake (but paid nothing) in a joint venture with Bombardier, maker of the the single-aisle CSeries jets, a money-losing regional jet program Airbus thinks could have big potential.
Boeing may think the same about Embraer, which is close to completing several upgrades to its own renewed line of regional jets, particularly its new three-aircraft portfolio under the E2 brand.
Embraer's E195-E2 jet, launched at last summer's Paris Air Show, competes directly with the Bombardier CSeries jets.
(Andrew McIntosh - Puget Sound Business Journal)