French and Germans blamed after world’s biggest defence deal between BAE and EADS sunk

By ANDREW WHITAKER
Published on 11/10/2012 00:53

A CONTROVERSIAL multi-billion pound deal between BAE Systems and EADS to create the world’s biggest defence contractor has collapsed after last-ditch diplomatic efforts to save the merger failed.

• Proposed merger between BAE Systems and EADS collapses

• Merged company would have become market leader ahead of Boeing

• Concerns that France and Germany would have had disproportionately large stake in deal

BAE – Britain’s largest defence contractor, which employs 40,000 staff in the UK – said the merger had failed due to political deadlock between the UK and the French and German governments.

Concerns about the proposed deal centred around the influence of the French and German governments over Airbus manufacturer EADS and the possible impact of the move on Anglo-US relations. The collapse of the deal came before a UK stock market deadline last night to agree the

£28 billion merger and followed days of talks between the UK, German and French governments to overcome political objections to the deal.

A single defence contractor would have been created, with combined sales of £60bn and more than 220,000 staff, with 52,000 employees in the UK.

The UK government had insisted that the French and German governments reduce their stakes in EADS, to agree to limit their influence in the merged firm in order to maintain BAE’s relations with the Pentagon.

Defence Secretary Philip Hammond said that the merger collapsed because it was “too difficult” to reconcile the differences of the governments involved, with France having a direct stake in EADS, while German influence is held through a 22 per cent stake owned by car maker and industrial group Daimler.

Mr Hammond said: “The British Government has always understood the attraction of building what would be a world-leading defence company but it had to be done on the basis it was in Britain’s national interest and we set out our requirements to make that happen and the French and German governments have done the same. The company is looking at all of the facts and all of the stakeholders and has decided it was too difficult to progress this project.”

When asked if the sticking point was the refusal of the French and the Germans to give up sufficient control over the company, the minister said: “Yes, our view is that for this company as a merged entity to become successful, it must be free to operate as a commercial company free of undue control by any single government. That is something the company has decided it is not able to achieve.”

Ian King, BAE chief executive, said: “We are disappointed that we were unable to reach an

acceptable agreement with our various stakeholders.”

BAE employs 5,000 staff in Scotland. Jim Moohan, an official of the GMB union in Scotland, said: “This is a decision of fine judgment and the BAE workforce will be relieved that the management did not rush into a situation that could have destabilised a very successful company. There were too many ‘ifs’ or ‘buts’ which, if the merger had gone ahead, were causing serious concern.

“GMB now hopes that BAE will focus on what they do very successfully and the company must look to world markets for opportunities for their highly skilled workforce.”