EADS and BAE: Bosses urge political support for merger

Tom Enders Mr Enders says the merger plan was born out of opportunity, not necessity

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The bosses of BAE Systems and EADS have issued a joint appeal for support for their proposed $45bn (£28bn) merger.

The statement by Ian King and Tom Enders, published in UK, French and German newspapers, come as the defence and aerospace firms seek a tie-up.

They also need political support for the deal as France and Germany are keen to maintain their interests in EADS.

The deal faced another setback on Monday when Lagardere, a key EADS shareholder, expressed reservations.

"Despite the industrial and strategic potential attributed to it, this plan has not yet demonstrated that it was creating value for EADS," a spokesman for the French media group said, as it called for a review of the deal.

Lagardere owns 7.5% of EADS, but has an agreement dating back to EADS' foundation 2000 to represent the French government in their collective 22% share.

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BAE and EADS see themselves as trying to forge the equivalent of our victorious golfing squad. ”

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The French shareholder's comments rebutted the two chief executives' claim that the merger would create a company "greater than the sum of its parts", said the chief executives.

Golden share

On Monday, the Reuters news agency cited an anonymous defence ministry source as saying that the UK government would veto the deal if it deemed it not good for Britain.

The government owns a golden share in BAE that allows it to block any change in control of the UK-listed company.

The UK parliament's defence committee has already launched its own review of the deal, including its impact on UK defence policy and national security, and on the company's relations with the US Pentagon, one of its biggest clients.

Despite EADS' much greater revenues, the two firms have turned in roughly equal profits of about £1.2bn ($2bn) over the 12 months to June this year.

 

The markets also appear to have taken the view that the deal is much better for the UK's BAE than for the Franco-German EADS.

EADS shares have fallen 17% since news of the merger negotiations first leaked on 12 September, while BAE shares have held steady.

Deadline

The two companies' bosses argue the combined business will be more resilient, and better able to take advantage of opportunities for growth.

BAE Systems is a major defence contractor in Europe and the US, while EADS owns planemaker Airbus, the European rival to America's Boeing.

The two bosses want to replace the current arrangements which give effective joint control to three shareholders - Lagardere, the French state, and German industrial group Daimler, which owns 22.5% of the company.

Instead, they say, the new group should be allowed to operate in a normal commercial manner, with all shareholders having the same rights.

However, that may cause friction with Paris and Berlin, with reports suggesting both governments are keen to preserve their influence within the new company.

Eurofighter Typhoon outside a BAE Systems hangar

The negotiations among the governments and shareholders must be finalised by 10 October, according to UK takeover rules.

This deadline is widely expected to be extended at the request of the parties involved, however.

The shadow defence secretary, Jim Murphy, told the BBC that he also anticipated a delay, having spoken to EADS management on Sunday.

Meanwhile, the French and German defence ministers said they had met three times in the past week to hammer out a common negotiating position.

"We will reach a joint position very quickly," said the German minister, Thomas de Maiziere.

"The initiative for a tie-up between EADS and BAE is interesting and attractive," added his French counterpart, Jean-Yves le Drian.

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