Blair `furious' over BAe's pounds 7bn takeover of Marconi

Shares plunge on fears that further defence consolidation in Europe will be delayed

The pounds 7bn takeover of GEC's Marconi defence electronics arm by British Aerospace ran into double trouble yesterday after Tony Blair warned that it could slow the process of European defence restructuring and shares in the two companies plunged.

The Prime Minister's blunt warning was delivered to the chairman of BAe, Sir Dick Evans, and GEC's chief executive, Lord Simpson, at a private meeting on Monday evening.

Lord Simpson, who was ennobled by the Labour government, indicated yesterday that Mr Blair had spelt out in the clearest of terms that he would have preferred to have seen a cross-border merger that included French or German partners. DaimlerChrysler Aerospace (Dasa), which was in advanced merger talks with BAe until just before Christmas, said the BAe-Marconi deal would make horizontal European mergers "impossible and create an obstacle to European integration".

Sir Dick said: "The Prime Minister's views on this and other matters are very important to us."

But, despite a concerted effort to sell the merger to the Government and the City as a "win-win deal" that would benefit shareholders and accelerate the process of defence consolidation, shares in BAe and GEC fell by 14 per cent and 6 per cent respectively.

This cut the value of Marconi by pounds 700m to pounds 7bn and reduced the stock market value of the combined business to pounds 14bn.

Analysts said that apart from "deal fatigue", the shares had been hit by fears that the merger indeed spelt the end of further European consolidation, that the 30 per cent premium paid by BAe was excessive, and that the savings from the merger would go to customers rather than shareholders.

Sir Dick conceded that the merger would initially be seen as "threatening and an obstacle to making progress" by other companies. But he said that consolidation could best be driven forward if there were just one major player in each country. "The reality is that Europe can afford only one aerospace entity," he added.

The merger will create the fourth-biggest aerospace and defence company in the world after Boeing, Lockheed Martin and Raytheon of the US, with sales of pounds 13bn and pounds 33bn orders.

BAe said there would be cost savings of at least pounds 275m by the third year, which would lift earnings by 10 per cent. There would be job losses but BAe would not give a number.

Ken Jackson, general secretary of the AEEU engineering union, said the deal would secure thousands of jobs.

BAe is financing the deal with 1.17 billion new shares, a pounds 1.55bn cash payment to GEC and pounds 440m of convertible loan stock repayable over three years. Goodwill charged against profits could reach pounds 7bn if BAe treats the deal as an acquisition.

There was speculation about how Lord Simpson would spend the pounds 2.7bn cash pile the rump of GEC has. He rejected rumours GEC would bid for Racal Telecoms but indicated it hoped to do a big deal to strengthen its telecoms division.

Countdown to consolidation

January 1995: US approves $9bn Lockheed/ Martin Marietta merger.

May 1996: BAe and Lagardere of France form 50:50 missiles joint venture, Matra BAe Dynamics.

December 1996: Boeing announces $13bn takeover of McDonnell Douglas.

January 1997: French confirm that Aerospatiale and Dassault will merge.

December 1997: Raytheon acquires Hughes defence business for $9.5bn

April 1998: BAe pays pounds 269m for 35 per cent of Swedish aircraft maker Saab.

July 1998: GEC and Finmeccanica merge defence electronics arms.

July 1998: France reveals plan to merge Aerospatiale and Lagardere defence interests and float 20 per cent.

July 1998: Heads of six European countries back formation of single European aerospace and defence company.

December 1998: BAe indicates it is poised for $23bn merger with DaimlerChrysler Aerospace: GEC announces plans to demerge Marconi and intensifies talks with BAe.

January 1999: BAe and Marconi merge.

Start your day with The Independent, sign up for daily news emails
ebooksAn unforgettable anthology of contemporary reportage
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

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

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Digital Optimisation Executive - Marketing

£30000 - £35000 per annum: Recruitment Genius: The UK's fastest growing, multi...

Recruitment Genius: Financial Reporting Manager

£70000 - £90000 per annum: Recruitment Genius: A Financial Reporting Manager i...

Recruitment Genius: Payments Operations Assistant

£23000 - £25000 per annum: Recruitment Genius: They win lots of awards for the...

Recruitment Genius: Telephone Debt Negotiator

£13500 - £20000 per annum: Recruitment Genius: This nationwide enforcement com...

Day In a Page

Sepp Blatter resignation: The beginning of Fifa's long road to reform?

Does Blatter's departure mean Fifa will automatically clean up its act?

Don't bet on it, says Tom Peck
Charles Kennedy: The baby of the House who grew into a Lib Dem giant

The baby of the House who grew into a Lib Dem giant

Charles Kennedy was consistently a man of the centre-left, dedicated to social justice, but was also a champion of liberty and an opponent of the nanny-state, says Baroness Williams
Syria civil war: The harrowing testament of a five-year-old victim of this endless conflict

The harrowing testament of a five-year-old victim of Syria's endless civil war

Sahar Qanbar lost her mother and brother as civilians and government soldiers fought side by side after being surrounded by brutal Islamist fighters. Robert Fisk visited her
The future of songwriting: How streaming is changing everything we know about making music

The future of songwriting

How streaming is changing everything we know about making music
William Shemin and Henry Johnson: Jewish and black soldiers receive World War I Medal of Honor amid claims of discrimination

Recognition at long last

Jewish and black soldiers who fought in WWI finally receive medals after claims of discrimination
Beating obesity: The new pacemaker which helps over-eaters

Beating obesity

The new pacemaker which helps over-eaters
9 best women's festival waterproofs

Ready for rain: 9 best women's festival waterproofs

These are the macs to keep your denim dry and your hair frizz-free(ish)
Cycling World Hour Record: Nervous Sir Bradley Wiggins ready for pain as he prepares to go distance

Wiggins worried

Nervous Sir Bradley ready for pain as he prepares to attempt cycling's World Hour Record
Liverpool close in on Milner signing

Liverpool close in on Milner signing

Reds baulk at Christian Benteke £32.5m release clause
On your feet! Spending at least two hours a day standing reduces the risk of heart attacks, cancer and diabetes, according to new research

On your feet!

Spending half the day standing 'reduces risk of heart attacks and cancer'
With scores of surgeries closing, what hope is there for the David Cameron's promise of 5,000 more GPs and a 24/7 NHS?

The big NHS question

Why are there so few new GPs when so many want to study medicine?
Big knickers are back: Thongs ain't what they used to be

Thongs ain't what they used to be

Big knickers are back
Thurston Moore interview

Thurston Moore interview

On living in London, Sonic Youth and musical memoirs
In full bloom

In full bloom

Floral print womenswear
From leading man to Elephant Man, Bradley Cooper is terrific

From leading man to Elephant Man

Bradley Cooper is terrific