Taxpayer will lose out in BAE merger, says Alistair Darling

By DAVID MADDOX
Published on 14/09/2012 01:10

FORMER Chancellor Alistair Darling has warned that a proposed takeover involving Britain’s largest defence manufacturer could have national security implications and end up costing the British taxpayer more.

Defence giant BAE Systems is reported to be on the verge of a multi-billion-pound merger with Airbus aircraft manufacturer European Aeronautic, Defence and Space (EADS) to create the world’s biggest aerospace company, with a market value of about £31 billion.

Yesterday BAE’s shares dipped after an 11 per cent rise when the news was first announced, as the markets reacted and looked at the hurdles it would face getting the merger through.

But Mr Darling, who as Chancellor dumped competition rules to allow the controversial takeover of HBOS by Lloyds during the banking crisis, questioned whether the merger of the defence giants should be allowed to go ahead.

“All of this does mean that the ownership does become more diffused,” he said. “I think what all countries would be concerned about is anything that is sensitive would have to be safeguarded.”

However, he said that he believed the current situation in the world meant that mergers in the defence and aerospace industry were “inevitable”.

He added: “What does worry me is that mergers mean competition is reduced and that means a greater risk that the prices are going to go up.”

The UK government, which has a so-called golden share in BAE that allows it to veto deals that are seen to put the public interest at risk, has already said it will seek to ensure UK interests are “properly protected”.

BAE said a tie-up with EADS would form a “world-class” company in its sector, with combined sales of £60bn and about 220,000 staff. The merged group would employ about 48,000 in the UK alone.

The two groups are working on plans to create a combined firm that would retain its dual listing.

“BAE Systems and EADS have a long history of collaboration and are currently partners in a number of important projects, including the Eurofighter,” a BAE spokesman said.

“The potential combination would create a world-class international aerospace, defence and security group.”

The firms are in talks with governments worldwide about the implications of such a deal, given the sensitive and secure nature of their work, BAE said.

Under City takeover rules, both firms have until 5pm on 
10 October to announce a deal or walk away.

A government spokesman said: “We are aware of this proposal. The business benefits of such arrangements are a matter for the companies involved. However, given the nature of the companies’ activities, we would want to ensure the UK’s public interest was properly protected.”