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

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  • rate this

    Comment number 114.

    So many people talking rubbish and grinding political axes. Whilst BAE isn't growing at the mo, it has considerably over the last 10yrs or so, due to US military spending. I always thought they were foolish to get out of civil aviation but there was some logic. Military has far greater margins, as evident by BAE and EADS making the same profits when BAE is much smaller. Try bying Bombadier etc.?

  • rate this

    Comment number 113.

    108. Harry - typical chip on shoulder bitter nonesense! I'm sure you'd blame the British Gov for the Japanese Tsunami if you could. If you bothered to read what the Chair of EADS said, it was down to the GER gov. Read between the lines. He sees FRA and GER gov involvement either inhibiting business or interferring. The Brit gov has no say in BAE only a "golden vote".

  • rate this

    Comment number 112.

    I would imagine that as a result of this deal collapsing the people on the shop floor are cheering & the boardroom members are crying on one another's shoulders.
    This country has avoided selling out for the sake of a few bonuses for the big wigs at the expense of it's military future independence.
    If BAe had merged with EADS it would have been asset stripped & left Rolls Royce next in line. Saved

  • rate this

    Comment number 111.

    #107 agree to a degree MOD has issues becaus eof too much political intererance and that cause trouble for UK buisness. Still can have a degree of free market but they have to inside the UK.

    #108 so it ok to trust the germans/french to run our business BUT not the UK/shareholders to ru nthe french/german buisnesses. U need to take the blinders of.

  • rate this

    Comment number 110.


    With the MOD's shocking ability ot procure anything at a decent price Gordon Brown probably did us a favour cancelling programmes before they got out of hand......

  • rate this

    Comment number 109.


    You don’t have to have strong domestic market to produce quality goods – examples abound (China, Switzerland etc.). Huge companies rarely translate into economies of scale and cheaper prices. Hence competitive European armament industry is a bit of an oxymoron. It’s good BAE has competition in its key market – US.

    Common army? Hmmm – you assume Europe is one big happy family

  • rate this

    Comment number 108.

    I see the usual nasty Little Englanders are out and about again today. When it comes down to it, however, the takeover fell through because neither the French nor the German governments trusted the British government. And who can blame them? Even *I* don't trust the British government one inch ... and I'm English!

  • rate this

    Comment number 107.


    You can blame Labour and scruffy foreign shysters if you like. They are cetainly guilty. However, so too are the Tories and our homebred business folks.

    MoD procurement is an unmitigated disaster. Lack of homegrown competition is also gone thanks to decades of "free market" policies.

    It will take decades (at best) to repair the damage - both to the economy and to our defence.

  • rate this

    Comment number 106.

    So, it's over. Nice comments from British people. Whatever is the british brightness (or suppose so) : BAE shares fell 2% in London trading as the news broke, while EADS shares jumped 3%.
    Does anybody in Britain understand why ? French and german don't need an additional company with on comings problem to take care of. So keep it and sink it.

  • rate this

    Comment number 105.

    The facts are simple, BAE systems exists because of Government spending, and at a time when Governments are cutting expenditure notably in defense spending, BAE's future is in question.
    EADS is a great success, share price up 79% in the last years compared to +0.78% for BAE. EADS unlike BAE rely very little on Governement spending, most of its business come from booming private airline contracts

  • rate this

    Comment number 104.

    #101 since 2001 the defence developement side of the UK has been in a recession work wise as many things were scrapped by BLAIR/BROWN to go fighting these wars.
    such as the medium lift helo scrapped by brown , chinook procurement/developement turn into a fiasco, MK4 still not deliver by THALES bleeding the UK dry they are.

  • rate this

    Comment number 103.

    Bovine stupidity in the top management of BAE Systems has brought them to this point. All civil aircraft and, indeed, any products of use in a civilian market place has been abandoned or sold off. The ex-British Aerospace Airbus wings factory was actually sold to EADS a few years ago. So having made their bed, they must now lie on it. Sackings of the guilty men shouyld start immediately.

  • rate this

    Comment number 102.

    Thank goodness this ill thought out deal has collapsed. The french have a successful military company called Dassault. Where do you think EADS / BAE with its FRENCH and GERMAN shareholders would make new investment? and where would they have made cuts? The BAE shareholders should sack the lacklustre board and get a new one with some ambition and drive. They should form an alliance with Raytheon.

  • rate this

    Comment number 101.


    "so its ok for france and germany to spend on defence but not UK ?"

    Did I say that?

    Of course we can spend on defence. It would be nice though if we got something for our money, wouldn't you say? ...aircraft carriers, some kind of independent nuclear deterent, kit for the soldiers, that sort of thing.

    More pork to support BAE does little to defend the realm.

  • rate this

    Comment number 100.

    There's a pattern in British industrial management of the top levels being barely competent. A British company goes to the wall, gets bought out by some foreign investor, and suddenly succeeds.

    Maybe EADS thought they could do the same, and our government may have been more concerned with British managers than with British workers?

  • rate this

    Comment number 99.

    US interests win again.

  • rate this

    Comment number 98.

    BAE is a British success story, albeit on the back of US defence spending in the past decade or so. And so it should - and hopefully now will - remain. The value of a British defence industry champion and World leader in certain technologies should be maintained and built on. Why would a BAE/EADS merged company have benefited UK plc in any way at all?

  • rate this

    Comment number 97.

    Didn't believe it was ever a realistic proposal. My guess is it was just the powers that be artificially inflating the share price prior to selling. It would be interesting to know who out of those involved sold shares in BAE when they were at 363p.
    This sort of activity is going on worldwide and it is playing havoc with world economies.
    The rich get richer and hard luck the rest!

  • rate this

    Comment number 96.

    Lets NOT tie our future and that of key industries to Europe. As Cameron said, BRITAIN can rise again. This would never have worked in practise, the cultural and political differences were too great.

  • rate this

    Comment number 95.

    #94 what a ridiculus remark

    so its ok for france and germany to spend on defence but not UK ?


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