The failed EADS and BAE merger and how Merkel's wings were clipped

EADS' chief Tom Enders has succeeded where many have failed and tamed the German leader in a wrangle over shares in the defence giant, says Mark Leftly

There is little doubt that Angela Merkel considers herself to be Europe's most powerful politician. What is surprising is that her rivals for that title in the continent's other traditional powerhouses, France and the UK, seem to believe it too.

In October, when Airbus-owner EADS and British defence giant BAE Systems were trying to create a submarines-to-satellites empire that would be able to match United States titan Boeing, François Hollande and David Cameron staked their diplomatic reputations on backing the deal. Only Merkel considered her country's interests to be compromised.

Hollande was, according to sources, shocked when, with little time remaining under Takeover Panel rules to broker the £30bn merger, Merkel spoke to him over the phone and said: "I do not want to go into it. I do not wish these proceedings to go forward."

"Oh, shit," Hollande is understood to have said to an adviser. "I have just got this entire agreement through the cabinet."

Cameron confidently told the French president that he would intervene, but Merkel would not take his calls. Remarkably, it was the British that held a golden share in BAE, which allows the state to block a foreign sale, and the French that owned stock in EADS.

Germany had some control of EADS, but only through its influence on German shareholder Daimler. In theory, Merkel held none of the cards yet she fairly easily crushed the plans, her ministers continually raising objections that were conceded by the other parties involved until she chose to simply say "nein" without explanation.

From when news of the deal landed in September, it was often pointed out that EADS wanted the deal, while BAE needed it. Indeed, a source close to the former said at the time that EADS "is rescuing them", as BAE faces falling defence budgets in the US and UK and needed Airbus's strong civil aircraft sales to help balance its trading cycle.

EADS boss Tom Enders wanted a deal as he was sick of a share structure that saw France, Germany and, to a much lesser extent, Spain own more than half the group either directly or indirectly. The BAE deal would have seen the countries copy the golden share structure, and free Enders from the continual political interference that means board members are backed and vetoed according to the whims of Paris and Berlin.

Remarkably, though, Enders seems to have succeeded less than two months after Cameron and Hollande so spectacularly failed. He has tamed Merkel and, after more than a decade of political crises, forced through a commercial structure that will benefit 14,000 workers on Airbus wings in Filton, near Bristol and Broughton, North Wales.

As one long-term EADS adviser puts it: "The company will have won. It might even be able to bid for work in the US and the UK."

Last week, EADS confirmed plans that will see Germany formally become a state shareholder alongside France and Spain. Importantly for Merkel, Germany will have the same 12 per cent stake as France.

One of Germany's biggest fears under the BAE merger was that France would retain a shareholding. Merkel proved herself not to be bothered about Germany's actual share, she just didn't like the idea that Paris would hold more stock than Berlin: she wanted parity with a rival, influence over the company itself did not particularly interest her.

"The German government is putting billions of euros [into buying shares] in this company when it doesn't actually need it," laughs an industry expert, who accuses the German Chancellor of hubris. "Arguably, Merkel should be putting that money into unemployment programmes in times like these. How are a small amount of shares useful at the moment?"

Combined with Spain, the countries will now have less than 30 per cent of the company, meaning they will not be forced to make a takeover bid should they be considered to be investing as a group. The rest of the shares will be sold freely to institutional and private investors, who will see that state powers of veto have been restricted as a result. As EADS chief strategy officer Marwan Lahoud put it last week: "What the BAE failure has shown is that, first things first. If you want to do a strategic transaction … you need first to start by getting your governance right."

There seems to be a hint there that the BAE deal could return once the share restructure is completed. However, even bankers and lawyers who stand to make millions in fees from a potential revisit of that merger think the time has now passed.

Rather, EADS will be free to beef up its defence operations, perhaps even emerging as a rival to BAE. EADS' relations with British ministers are thought to have improved through the BAE negotiations, and now there will be no paranoid fears that giving contracts to the Toulouse and Munich-headquartered group would hand defence codes to other governments.

More importantly, the BAE deal was hampered by concerns that the US would block defence contracts to the UK group, which are so important to its financial success. The Pentagon, it was reasoned, did not want the French and Germans to oversee any parts of a military programme, though the Brits are fine due to fighting alongside each other in Iraq and Afghanistan.

There is arguably precedent for this. In 2008, EADS teamed up with Northrop Grumman and won a 179-plane deal to replace the US's ageing flight refuelling fleet, a decision Boeing appealed. The Chicago-based group was ultimately awarded the contract in a re-run of the selection competition, which critics still say stinks of political protectionism.

Although Boeing executives initially suggested that they were relaxed over the merger, there was a growing feeling that the company was preparing to lobby congress that such a rival could cost US jobs. Given that Boeing and EADS have spent years accusing each other of taking one form of state aid or another, such fears seem justified.

However, Boeing will find it hard to argue that any EADS expansion in the US is now influenced by European politicians. "They might even be able to buy a US defence contractor now," says a source close to the company, highlighting another ambition of Enders, a former German paratrooper.

Having taken on Merkel and won, Barack Obama and Capitol Hill probably seems like a doddle.

Airbus build deal hits turbulence

EADS' biggest government contract in the UK is a £10.5bn deal to modify 14 air refuelling planes for the Ministry of Defence.

However, the AirTanker consortium, of which EADS is a part, has been hit by problems this year. Originally, three Airbus A330 aircraft were supposed to be revamped in Madrid and the remainder at the Bournemouth facilities of partner Cobham.

However, difficulties in "hitting key milestones", as one source put it, has meant that the bulk of the work has been shifted to Spain. Now, 12 planes will be modified in Madrid and just two in Bournemouth.

The contract only started this year, but the first aircraft will be ready by the middle of 2013. The fleet is expected to be fully operational by the summer of 2014.

News
A 1930 image of the Karl Albrecht Spiritousen and Lebensmittel shop, Essen. The shop was opened by Karl and Theo Albrecht’s mother; the brothers later founded Aldi
people
Arts and Entertainment
Standing the test of time: Michael J Fox and Christopher Lloyd in 'Back to the Future'
filmA cult movie event aims to immerse audiences of 80,000 in ‘Back to the Future’. But has it lost its magic?
Arts and Entertainment
Flora Spencer-Longhurst as Lavinia, William Houston as Titus Andronicus and Dyfan Dwyfor as Lucius
theatreThe Shakespeare play that proved too much for more than 100 people
News
exclusivePunk icon Viv Albertine on Sid Vicious, complacent white men, and why free love led to rape
PROMOTED VIDEO
Arts and Entertainment
Stir crazy: Noel Fielding in 'Luxury Comedy 2: Tales from Painted Hawaii'
comedyAs ‘Luxury Comedy’ returns, Noel Fielding on why mainstream success scares him and what the future holds for 'The Boosh'
Life and Style
Flow chart: Karl Landsteiner discovered blood types in 1900, yet scientists have still not come up with an explanation for their existence
lifeAll of us have one. Yet even now, it’s a matter of debate what they’re for
Arts and Entertainment
'Weird Al' Yankovic, or Alfred Matthew, at the 2014 Los Angeles Film Festival Screening of
musicHis latest video is an ode to good grammar. But what do our experts think he’s missed out?
Sport
New Real Madrid signing James Rodríguez with club president Florentino Perez
sportColombian World Cup star completes £63m move to Spain
Travel
Hotel Tour d’Auvergne in Paris launches pay-what-you-want
travelIt seems fraught with financial risk, but the policy has its benefits
Arts and Entertainment
booksThe best children's books for this summer
Life and Style
News to me: family events were recorded in the personal columns
techFamily events used to be marked in the personal columns. But now Facebook has usurped that
News
ebookA unique anthology of reporting and analysis of a crucial period of history
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

Programme Director - Conduct Risk - London

£850 - £950 per day: Orgtel: Programme Director - Conduct Risk - Banking - £85...

Business Analyst (Agile, SDLC, software)

£45000 - £50000 Per Annum + excellent benefits: Clearwater People Solutions Lt...

Finance Manager - Bank - Leeds - £300/day

£250 - £300 per day + competitive: Orgtel: Finance Manager - Accountant - Bank...

Compliance Officer - CF10, CF11, Compliance Oversight, AML, FX

£100000 - £120000 per annum + BONUS + BENEFITS: Harrington Starr: A leading fi...

Day In a Page

Noel Fielding's 'Luxury Comedy': A land of the outright bizarre

Noel Fielding's 'Luxury Comedy'

A land of the outright bizarre
What are the worst 'Word Crimes'?

What are the worst 'Word Crimes'?

‘Weird Al’ Yankovic's latest video is an ode to good grammar. But what do The Independent’s experts think he’s missed out?
Can Secret Cinema sell 80,000 'Back to the Future' tickets?

The worst kept secret in cinema

A cult movie event aims to immerse audiences of 80,000 in ‘Back to the Future’. But has it lost its magic?
Facebook: The new hatched, matched and dispatched

The new hatched, matched and dispatched

Family events used to be marked in the personal columns. But now Facebook has usurped the ‘Births, Deaths and Marriages’ announcements
Why do we have blood types?

Are you my type?

All of us have one but probably never wondered why. Yet even now, a century after blood types were discovered, it’s a matter of debate what they’re for
Honesty box hotels: You decide how much you pay

Honesty box hotels

Five hotels in Paris now allow guests to pay only what they think their stay was worth. It seems fraught with financial risk, but the honesty policy has its benefit
Commonwealth Games 2014: Why weight of pressure rests easy on Michael Jamieson’s shoulders

Michael Jamieson: Why weight of pressure rests easy on his shoulders

The Scottish swimmer is ready for ‘the biggest race of my life’ at the Commonwealth Games
Some are reformed drug addicts. Some are single mums. All are on benefits. But now these so-called 'scroungers’ are fighting back

The 'scroungers’ fight back

The welfare claimants battling to alter stereotypes
Amazing video shows Nasa 'flame extinguishment experiment' in action

Fireballs in space

Amazing video shows Nasa's 'flame extinguishment experiment' in action
A Bible for billionaires

A Bible for billionaires

Find out why America's richest men are reading John Brookes
Paranoid parenting is on the rise - and our children are suffering because of it

Paranoid parenting is on the rise

And our children are suffering because of it
For sale: Island where the Magna Carta was sealed

Magna Carta Island goes on sale

Yours for a cool £4m
Phone hacking scandal special report: The slide into crime at the 'News of the World'

The hacker's tale: the slide into crime at the 'News of the World'

Glenn Mulcaire was jailed for six months for intercepting phone messages. James Hanning tells his story in a new book. This is an extract
We flinch, but there are degrees of paedophilia

We flinch, but there are degrees of paedophilia

Child abusers are not all the same, yet the idea of treating them differently in relation to the severity of their crimes has somehow become controversial
The truth about conspiracy theories is that some require considering

The truth about conspiracy theories is that some require considering

For instance, did Isis kill the Israeli teenagers to trigger a war, asks Patrick Cockburn