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.

UPDATE 07:20 BST

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.

UPDATE 09:17 BST

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.

UPDATE 12:43 BST

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, economics editor Article written by Robert Peston Robert Peston Economics editor

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  • rate this
    -3

    Comment number 94.

    Oh dear. Looks like BAE will be suffering and won't have a suitable backstop.

    But lo! How can the British government help? Easy - let's start another war! That'll be good for business.

    Iran looks ripe. Let's 'ave 'em!

  • rate this
    +1

    Comment number 93.

    When anyone crows about a prediction of a business deal that goes South my usual reaction is to smile and walk away.

    Unless they had inside knowledge of the deal it's just a lucky guess.

  • rate this
    +6

    Comment number 92.

    Good. Now the shareholders should fire the board and employ people that actually have some vision and an understanding of technology & markets so they can grow and broaden out BAe's services & products.

  • rate this
    +1

    Comment number 91.

    #88 Ken sound like UKIP policy is the wya forward then

  • rate this
    0

    Comment number 90.

    #87 and therefore why should we be in the EU then ?

    A lot of people may be asking that question more after today. After so many years in continental Europe I cannot understand why they persist in this Napoleanic idea which is backward on just about every socio-economic viewpoint. A free market for services, products and people is quite enough. A common currency, common taxation - humbug.

  • rate this
    0

    Comment number 89.

    #87 and therefore why should we be in the EU then ?

  • rate this
    +1

    Comment number 88.

    Thankfully, sound rationale has prevailed and BAE should always remain under UK control. All UK Utilities and nuclear power plants should be too, but look at where we are now ! When will politicians realize that maintaining our basic infrastructures is in all our (British) long term interests ? Strange that Russia, China, India and the Middle East know what is right for their countries..!!

  • rate this
    0

    Comment number 87.

    The worm has turned against dirigiste industrial policy and not so level playing fields. France and Germany were not going to give away those juicy social taxes EADS pays on all its employees. The risk of more investment and jobs going to the U.K. with its lower cost base was far too great. It was also a pride thing about not giving up political control of yoghurt (Danone) or in this case planes.

  • rate this
    +1

    Comment number 86.

    So the germans don't even own a part of EADS but are just pushinh themselves in and demanding to own a part of this new military mega company and demanding HQ in berlin aswell as to sit on the board of the new company.

    Hahaha germany ere are punching way above their weight n really should have nothing to do with this deal. What do they want with defence anyway have they not learnt their lesson.

  • rate this
    +2

    Comment number 85.

    Pleasing result but leaves BAe with a problem of a falling market.

    The management have taken their collective eye off the ball. They need to get back to running the business and diversifying. Perhaps working even more closely with UK Universities to increase the number of highly skilled employees even if the dividend suffers a little.

    Maybe new management would help, but not convinced.

  • rate this
    +3

    Comment number 84.

    So, are they trying to export more British engineering jobs overseas ?
    No ?
    Then why merge BAE with any other company ?
    BAE has good staff, good potential, why not use it to develop British Industry ?
    Perhaps BAE could develop non weapon related systems ?
    What about Robotics, Home Insulation (Modular houses ?),
    new fabrics ?
    Lots of things the techies at BAE could do....

  • rate this
    +1

    Comment number 83.

    whooopeee,

  • rate this
    -2

    Comment number 82.

    so the germans acted in their own national interest then.

    this deal is dead and should stay dead.

    what for the EU then that should be dead too.

    bring on the debate

    and also change the management at BAE too

  • rate this
    -2

    Comment number 81.

    78. Norman Porter

    My thoughts entirely. The shareholders should move to have an EGM and vote for a motion of no confidence.

    An equal victory for

    1. BAe share holders
    2. BAe employees and those in the supply chain
    3. HM treasury (all of us).

    It is about time some red lines were drawn. It was ridiculous just on the basis of financials. Just a 350M + pound tax loss made my blood boil.

  • rate this
    -1

    Comment number 80.

    We have a better and bigger project for BAE & that is to design and build a Trident replacement in Britain - at lower cost than US version and using mainly British technology & skills.

    The BAE company would nead to be restructured and be much better managed than BAE has shown with too many mishaps in recent years.

    For the 'growth goon babblers' - that is what leads to 'growth'.

  • rate this
    -2

    Comment number 79.

    Well, what a wonderful thing that this merge. Just think a minute...which company is or will be soon in trouble because it is loosing momentum on the defense contracts ? BAE or EADS ? The british government is putting a red line on german and french governments, (9% and no gold share) to prevent them to do alike in the future. Where is the rationale ? Hope the americans will buy it...good luck.

  • rate this
    +1

    Comment number 78.

    Now that the deal has collapsed (as it should have done) shareholders must seek a change to the senior management and the Chairman.

    Ian King is not the right man to lead BAE - he has no vision.

  • rate this
    +1

    Comment number 77.

    1. Bad for shareholders - return on assets and dividend yields cut in half.
    2. Bad for employees of BAe and its supply chain - less security under foreign political pressure to move resources and investment away.
    3. Bad for HM Treasury (that means everyone) - almost no tax paid on profits. Additional losses from supply chain disruption if 2 occurs.

    I say humbug to those proffering a takeover.

  • rate this
    +1

    Comment number 76.

    #75 YES all a bit like tv show bargain hunt
    find a sucker a low price seller
    and then sell hopefully 4 a profit

  • rate this
    0

    Comment number 75.

    Everywhere you look, fatal conflict of interest

    Setting aside opinions of psycho-sociopaths, the sadomasochistic, the would-be Quisling, the young plain ignorant & ineducable, if 'we' considered & settled on Equal Partnership, in Equal Democracy, on Equal Income-Shares, all would enter the Kingdom of Heaven, in adult fashion, our children & 'weaker brethren' along with us

    Otherwise, confusion

 

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