BAE merger stalls as investors wrangle

Instead of moving closer to reality, the prospects of creating the world's biggest aerospace and defence group with EADS have actually receded, says Tom Bawden

It was meant to be the first day of the big push, to make their proposed £30bn aerospace and defence merger a reality. Instead, the highly political £30bn deal mooted by Britain's BAE Systems and Europe's EADS last month, but still nowhere near finalised, took a couple of decisive steps back yesterday.

In a show of unity, the heads of EADS and BAE kicked off their quest to agree the main details of the proposed merger in time for next Wednesday's Takeover Panel deadline by publishing joint articles in British, French and German newspapers yesterday.

It got off to an unconvincing start, conceding that "we are not yet in a position to tell the full story and explain the significant benefits of the combination to our shareholders, employees, and other stakeholders".

To be fair, the companies had to confirm they were working on the deal long before they were ready, after leaks into the market. Nonetheless, it still seemed light on detail of the benefits of the tie-up, and heavier on the rhetoric.

"This is a strong combination borne out of opportunity, not necessity," explained Ian King and Tom Enders, chief executives of BAE and EADS respectively. "BAE Systems and EADS are both strong businesses with clearly defined strategies that have enabled them to make progress in the past five years, and which would take them forward as independent companies. But there comes a time when it is right to seize the moment and create something that is even stronger and better. We believe that time is now."

The sheen was taken off their communiqué almost immediately as a key French shareholder threw a spanner in the works. "Lagardère calls on the management of EADS to undertake, without delay, the indispensable re-examination of the project to combine Eads and BAE, to better take into account the interest of all the French controlling shareholders of Eads," a spokesman said. "This plan has not yet demonstrated that it was creating value for Eads. Lagardère considers that the merger conditions are currently unsatisfactory."

The comments, by a French conglomerate with a 7.5 per cent stake, were particularly damaging because they ratcheted up the financial element to the opposition. Until then, opposition to the deal had centred upon the UK, German, French, US and Spanish governments and how difficult it was to get them all to agree. Which it is. But Lagardère's concerns were about the price – and it is not alone in believing that EADS shareholders should have more than the 60 per cent of the combined group for which they have been pencilled in.

Nor are the political conflicts showing any sign of resolving themselves. Reports yesterday suggested that the German, French and British governments are struggling to reach agreement on key details of the merger, with one source now viewing the proposal as being more likely to fail than succeed as a result. For its part, a Ministry of Defence source pointed out that the British Government is ready to use its "golden share" in BAE to veto the deal if the terms, such as job guarantees, are not right.

BAE and Eads plan to create the world's biggest aerospace and defence group, through merging the Airbus planemaker with Europe's largest defence company.

As the British, French and German governments jostle for control over the enlarged company, seek to protect their national interests and press for assurances that jobs will be safeguarded, BAE and EADS are caught in a political hurricane which appears to be strengthening rather than subsiding.

Anyone doubting how political the wrangling has become might bear in mind that Morgan Stanley, one of the advisers representing BAE, has brought in Sir John Scarlett, the ex-head of MI6 who helped to produce the infamous dossier justifying the British Government's involvement in the 2003 invasion of Iraq.

His role came to light after it emerged that the Cabinet Secretary, Sir Jeremy Heywood, a former senior executive at Morgan Stanley, had held talks with David Cameron about the deal. To succeed, it will need as much help as it can get.

Start your day with The Independent, sign up for daily news emails
Arts and Entertainment
Lou Reed distorted the truth about his upbringing, and since his death in 2013, biographers and memoirists have added to the myths
musicThe truth about Lou Reed's upbringing beyond the biographers' and memoirists' myths
News
people
News
Ed Miliband received a warm welcome in Chester
election 2015
Life and Style
Apple CEO Tim Cook announces the Apple Watch during an Apple special even
fashionIs the Apple Watch for you? Well, it depends if you want for the fitness tech, or the style
ebooks
ebooksA special investigation by Andy McSmith
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE £45,000: SThree: SThree Group have been well e...

Ashdown Group: IT Manager / Development Manager - NW London - £58k + 15% bonus

£50000 - £667000 per annum + excellent benefits : Ashdown Group: IT Manager / ...

Recruitment Genius: Sales Consultant / Telemarketer - OTE £20,000

£13000 - £20000 per annum: Recruitment Genius: Scotland's leading life insuran...

Ashdown Group: Training Programme Manager - City, London

£40000 - £45000 per annum + benefits : Ashdown Group: Training Programme Manag...

Day In a Page

NHS struggling to monitor the safety and efficacy of its services outsourced to private providers

Who's monitoring the outsourced NHS services?

A report finds that private firms are not being properly assessed for their quality of care
Zac Goldsmith: 'I'll trigger a by-election over Heathrow'

Zac Goldsmith: 'I'll trigger a by-election over Heathrow'

The Tory MP said he did not want to stand again unless his party's manifesto ruled out a third runway. But he's doing so. Watch this space
How do Greek voters feel about Syriza's backtracking on its anti-austerity pledge?

How do Greeks feel about Syriza?

Five voters from different backgrounds tell us what they expect from Syriza's charismatic leader Alexis Tsipras
From Iraq to Libya and Syria: The wars that come back to haunt us

The wars that come back to haunt us

David Cameron should not escape blame for his role in conflicts that are still raging, argues Patrick Cockburn
Sam Baker and Lauren Laverne: Too busy to surf? Head to The Pool

Too busy to surf? Head to The Pool

A new website is trying to declutter the internet to help busy women. Holly Williams meets the founders
Heston Blumenthal to cook up a spice odyssey for British astronaut manning the International Space Station

UK's Major Tum to blast off on a spice odyssey

Nothing but the best for British astronaut as chef Heston Blumenthal cooks up his rations
John Harrison's 'longitude' clock sets new record - 300 years on

‘Longitude’ clock sets new record - 300 years on

Greenwich horologists celebrate as it keeps to within a second of real time over a 100-day test
Fears in the US of being outgunned in the vital propaganda wars by Russia, China - and even Isis - have prompted a rethink on overseas broadcasters

Let the propaganda wars begin - again

'Accurate, objective, comprehensive': that was Voice of America's creed, but now its masters want it to promote US policy, reports Rupert Cornwell
Why Japan's incredible long-distance runners will never win the London Marathon

Japan's incredible long-distance runners

Every year, Japanese long-distance runners post some of the world's fastest times – yet, come next weekend, not a single elite competitor from the country will be at the London Marathon
Why does Tom Drury remain the greatest writer you've never heard of?

Tom Drury: The quiet American

His debut was considered one of the finest novels of the past 50 years, and he is every bit the equal of his contemporaries, Jonathan Franzen, Dave Eggers and David Foster Wallace
You should judge a person by how they peel a potato

You should judge a person by how they peel a potato

Dave Hax's domestic tips are reminiscent of George Orwell's tea routine. The world might need revolution, but we like to sweat the small stuff, says DJ Taylor
Beige is back: The drab car colours of the 1970s are proving popular again

Beige to the future

Flares and flounce are back on catwalks but a revival in ’70s car paintjobs was a stack-heeled step too far – until now
Bill Granger recipes: Our chef's dishes highlight the delicate essence of fresh cheeses

Bill Granger cooks with fresh cheeses

More delicate on the palate, milder, fresh cheeses can also be kinder to the waistline
Aston Villa vs Liverpool: 'This FA Cup run has been wonderful,' says veteran Shay Given

Shay Given: 'This FA Cup run has been wonderful'

The Villa keeper has been overlooked for a long time and has unhappy memories of the national stadium – but he is savouring his chance to play at Wembley
Timeless drama of Championship race in league of its own - Michael Calvin

Michael Calvin's Last Word

Timeless drama of Championship race in league of its own