BAE’s £28bn European merger fails to take off
A proposed merger between Britain’s BAE Systems and Europe’s EADS has been called off after opposition from the German government, a spokesman for EADS has said.
BAE and EADS, which is largely controlled by the French and German governments, had been planning to merge to make a company worth £28bn.
However, an EADS spokesman today said that the deal had collapsed following opposition from the German government. “No firm reason has been given for the German opposition,” the spokesman said. “I suggest you speak to them.”
Golden share
Earlier in the week Defence Secretary Phillip Hammond said that the French and German governments would have to reduce their stakes in EADS if the UK was going to allow the merger to go ahead.
The UK has a “golden share” in BAE, which means it can block any change in control of the FTSE 100-listed company.
Mr Hammond met his counterparts in Germany, France and the US at a meeting in Brussels this week. Alongside the concern about French and German stakes in the business, he was seeking assurances that the governents would not try and increase their stakes over time, that they would surrender political influence over the business, and that they would give the UK guarantees over jobs.
Asked if the sticking point was the refusal of the French and the Germans to give up sufficient control over the company, Mr Hammond 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 or influence by any single government. That is something the company has decided it is not able to achieve.”
Read Channel 4 News Business Correspondent Siobhan Kennedy on the barriers to the merger.
In addition he wanted a firewall to protect BAE’s lucrative but sensitive contracts with the US defence department.
The US, as the UK’s key defence partner, may have also been concerned about the impact the business would have on Boeing as EADS owns its main rival, Airbus.
We are obviously disappointed that we were unable to reach an acceptable agreement with our various government stakeholders – Ian King, BAE Systems chief executive
BAE Sytems has a markets capitalisation of £10.4bn and is known for manufacturing, among other things, military equipment such as the Typhoon jet and the Bradley fighting vehicles (pictured, right). EADS has a market capitalisation of £17.4bn. Together the company would have employed 220,000 people.
BAE and EADS were a long way down the path of securing the deals, having agreed a range of milestones from the commercial terms of the merger to the management structure and a strategy for the business.
Ian King, chief executive of BAE, told the stock exchange today: “We are obviously disappointed that we were unable to reach an acceptable agreement with our various government stakeholders.
“We believe the merger presented a unique opportunity for BAE Systems and EADS to combine two world class and complementary businesses to create a world leading aerospace, defence and security group.”
Tom Enders, chief executive of EADS, said: “It is, of course, a pity we didn’t succeed but I’m glad we tried. I’m sure there will be other challenges we’ll tackle together in the future.”
Jim Murphy, the shadow defence secretary, responded to the announcement, saying: “There will be huge worry and uncertainty about the future of defence jobs, thousands of which have already been lost.”
Shares in BAE fell 1.29 per cent on the London stock exchange today whilst shares in EADS fell by 1.67 per cent on the New York stock exchange in early trading.