BAE Systems - EADS merger plan fails

The proposed corporate merger between BAE Systems and EADS has collapsed as a result of the failure of the governments involved in the deal – Germany, France and the United Kingdom – to reach agreement on operating arrangements for the new merged company.

The deal was abandoned by the two companies when it became clear that agreement over the terms of the merger would not be reached by a deadline of 5pm on 10 October set by the UK Takeover Panel.

In a joint statement, BAE Systems and EADS said they could not resolve state concerns about the deal. "It has become clear that the interests of the parties' government stakeholders cannot be adequately reconciled with each other or with the objectives that BAE Systems and EADS established for the merger," the statement said. Unless European governments “completely change their current view”, the companies said they would not be in a position to resurrect the deal.

The three governments blamed each other for the collapse of the merger. France, which controls 15% of EADS directly, apparently disapproved of German demands for the business to be headquartered in Munich, while Germany was seemingly unhappy with France potentially ending up with a bigger shareholding than the 9% it was looking for. The UK, in turn, rejected a proposal for German and French political representatives to sit on the BAE board, as would have been likely under the structure envisaged by both companies. Rationalisation of production locations and potential job losses resulting from the merger were a concern for all three governments.

Another fear was that the future company would be too focused on arms exports rather than civilian aerospace business – a particular worry for the German government.

There has been media speculation that, following the collapse of the EADS deal, a US-owned military corporation, such as Northrop Grumman, Boeing, or Lockheed Martin, will now approach BAE Systems for a merger or take-over.