Clock ticking for BAE and EADS merger

The clock is ticking for Europe’s EADS and Britain’s BAE to submit a formal merger plan that will create the world’s biggest aerospace and defence company, employing some 220,000 people.

But with 24 hours to go, politicians in France, Germany, Britain and the United States are still wrangling over how much of the combined group will be state-owned.

And unless they can resolve their differences, for all the fuss and analysis of the past few weeks, the £28bn merger may never see the light of day.

Philip Hammond, the defence secretary, met his French and German counterparts at a scheduled Nato meeting in Brussels today.

Great Britain has a golden share in BAE – our top defence manufacturer and key to our strategic relationship with the US – which it could use to block the deal unless France and Germany agree to a number of conditions.

Agree not to increase stakes

Chief among them that France and Germany reduce their stakes in any combined group and agree not to attempt to increase them over time.

They must surrender political influence over the company and give guarantees to the UK over jobs, as well as a reassurance that the group’s defence headquarters will stay in Britain.

In addition Britain wants a strong firewall around BAE’s lucrative but sensitive contracts with the US Defense Department, to which it is the fifth largest supplier.

Then there’s the obvious fact that EADS owns Airbus, the plane manufacturer whose arch-rival is Boeing of the United States. So can the US ever get comfortable with the deal on any terms?

Philip Hammond has said it’s likely the company will have to extend a 5pm Wednesday deadline to put a formal offer on the table to shareholders – many of whom are angry that details of the deal were leaked before they were given any formal heads up.

Better off staying put

Some have said they see no logic in a tie-up anyway, and think BAE would be better off staying put.

Tom Enders, the boss of EADS, and Ian King, the head of BAE, have said they will not proceed with a deal, or even try to extend tomorrow’s deadline, unless politicians can first agree on a structure that is suitable to all.

Both CEOs have said one of the reasons for coming together is to rid them of the political interference that has dogged the companies for years and allow them to operate as a normal commercial entity.

But given their respective national import can that only ever be a pipe dream?