Merger of BAE and EADS 'close to collapse'

BAE plane National governments are keen to protect their strategic interests

BAE and EADS could well abandon their plan to merge tomorrow, depending on the outcome tonight of make-or-break talks between the British, German and French governments.

It all hinges on whether France and Germany agree to significantly limit their power to influence the merged companies.

According to well-placed sources, right now it looks unlikely that they will agree to the terms demanded by the British government and by BAE and EADS.

In which case, the deal will collapse.

There are three so-called red lines for the companies and for the UK government.

First, that neither France nor Germany should ever own more than 9% of the enlarged group.

Second, that there should be no formal agreement between the French and German governments that they would vote their shareholdings together or in concert.

Third, that directors appointed by governments to a planned new "national security board" - designed to protect the security interests of countries in which the merged group has big operations - should not sit on the top board of the merged group.

I am told that France and Germany want their representatives to also sit on the holding company board.

"There must be no interlocking directorships," said a source.

Right now, getting guarantees from France and Germany on all this is proving impossible, but that could change in the course of the night, I am told.

The British Prime Minister David Cameron is being kept abreast of events.

BAE has a deadline of 17.00 BST tomorrow to decide whether to ask the UK Takeover Panel for an extension of two weeks to the allotted time for negotiating the merger. BAE's board is planning to make its decision tomorrow morning, having reviewed tonight's inter-governmental talks.

My sense from those close to the negotiations is that the collapse of the deal is the most likely outcome.


A source close to inter-governmental negotiations on EADS's plan to merger with BAE Systems has told me "there was no help from Germany overnight".

In other words, there still appears to be an insuperable obstacle to the deal, which would create the world's largest defence and aviation business, worth around £28bn.

As I explained last night, the boards of the two companies will call the whole thing off, unless persuaded that France and Germany will significantly curb their ownership and control of the enlarged company.

Talks between the British, German and French governments are expected to continue this morning.

But it is increasingly likely that the boards of EADS and BAE will decide to kill the deal, before today's 5pm deadline for requesting an extension to the negotiations.


My hunch is we will get statements from BAE and EADS around lunchtime or shortly after saying merger is off. Boards will discuss shortly before. The worry in both companies is that the German government is not bending.


BAE/EADS deal is dead, I have learned. Boards have decided. I will be interested to see what statements say about possibility of trying again in six months.

The reason that they killed the deal is they learned that the German government is opposed to the merger in a fundamental sense.

Robert Peston Article written by Robert Peston Robert Peston Economics editor

Why is the Treasury's interest rate so low?

How should the government take advantage of the record low interest rates it pays?

Read full article

More on This Story

More from Robert


This entry is now closed for comments

Jump to comments pagination
  • rate this

    Comment number 14.

    It pains me to say it, as a Europhile, but the EU breaks down to petty nationalism too oftern. Was it Lisbon where the EU leaders agreed consolidation of key EU industries such as banking, utilities and defence had to happen to compete with the US. All agreed but really meant they wanted consolidation with their own national "champions" leading. FRA still hasn't been prosecuted!

  • rate this

    Comment number 13.

    #9 News at 10 (&#'s1-5, happytravelling, DavidStJohn, ComradeOgilvy)

    One person at the Tory Party Conference, using 4 different pseudonyms on a BBC Blog HYS website does not the UK public opinion make!

    Have you taken a leaf, or should I say a webpage out of Grant Shapps book on Internet marketing?

    Stick to the Conference Champagne, it will help you sleep well tonight!

  • rate this

    Comment number 12.

    Merger of BAE and EADS 'close to collapse'

    Good news!
    No more 'Mandelson whimpering' by British MP's & govt on this - protect British jobs, workers, skills, 'know-how' etc

    Show us that 'we're all in together' & not been sold out again & back-stabbed by political class and free-loaders

  • rate this

    Comment number 11.

    8 & 10 Looks like someone is in denial, creating conspiracy theories. My comments about the EADS merger are absolutely true! The BAE-DASA deal was deliberated for months until the GER gov could more or less hold back no more (EU fair trade rule etc.) and they hurriedly partnered with Aerospacial and CASA as it would be a genuine merger. P.S FRA sent Arg missile techs during the war.

  • rate this

    Comment number 10.

    45 Cameron epistolaries are not interested in the deal's commercial logic. Its anti-European rhetoric for the Tory Party Conference like the EU budget "veto" & "referendum" .

    HMS Sheffield may have been saved with better knowledge about the Exocet missile through greater, earlier cooperation with the French.

    The price of rising nationalism & militarism during the great depression: a costly war.

  • rate this

    Comment number 9.

    @8. fleche_dor

    What ever helps you sleep at night, the comments sound the same because it's what most people think, they aint anti european they are pro british.

    You want to look at germany n france for being anti British blocking UK plc from taking over their business's over the years and attacking our industry.

  • rate this

    Comment number 8.

    #'s 1-5 appear from same source; identical style & all advocate the same highly negative, europhobic opinion about merger, EADS, French & German governments. Cameron's deal parameters, as outlined by Robert, "red lines" & #1-5 are all from 45 right wing extremists that wrote to him. They are just the Exocet missile, or torpedo those 45 wish the deal.

    Blatant pandering to withdrawalists.

  • rate this

    Comment number 7.

    Someone need to look at the boards of these companies, herein lies IQ’s an order of magnitude lower than required.

  • rate this

    Comment number 6.

    5. BAE gave up on the idea of expansion into EU due to the DASA experience and decided to focus on the US as it promised greater revenues and less complications.
    A BAE-EADS tie up makes sense but as you say, EADS was a political tie up. The GER and FRE gov merged the two companies as a rear guard action against BAE. So, not sure why they should change now.

  • rate this

    Comment number 5.

    EADS is a political football for the French & Germans, & they’re constantly squabbling about where production should take place with Airbus. Allowing BAE to merge with EADS, structured as it is, always was a non-starter & Enders probably saw this as an opportunity to reform it.

    BAE should merge with Rolls Royce, less potential but far more workable.

  • rate this

    Comment number 4.

    EADS gains advanced military tech especially our subs and destroyers which take decades to research and develop not to mention UK tax payers money. Also hands into american defence tech.

    BAE will get civilian aircraft....big wow deal off.

  • rate this

    Comment number 3.

    I think its prudent to remind people that EADS was formed out of panic to stop BAE dominating EU defense and aero industry. BAE had been in line to buy DASA and the GER gov didn't like the fact it was effectively a take over. So, they quickly tied the knot with Aerospaciale to form EADS and, what originally at least, was an ungainly merger. That's EU "fairtrade" for you.

  • rate this

    Comment number 2.

    Do the French and Germans not have demands of their own?

    Whilst you may argue about how reasonable our demands are, it almost seems like we raise these issues to cause trouble... Seems that's how we deal with Europe.

    Why don't they like us?

  • rate this

    Comment number 1.

    Thank god and also red lines should be on BAE being the lesser partner, must be equal merger or forget it. BAE should stay independent, the french n germans are out of control frothing at the mouth at the thought of controlling and building a future EU army n it's contracts.


Page 6 of 6



Copyright © 2015 BBC. The BBC is not responsible for the content of external sites. Read more.

This page is best viewed in an up-to-date web browser with style sheets (CSS) enabled. While you will be able to view the content of this page in your current browser, you will not be able to get the full visual experience. Please consider upgrading your browser software or enabling style sheets (CSS) if you are able to do so.