Seemingly endless German demands scuppered deal to secure British jobs

The German government proved the insurmountable obstacle to the mega-merger. EADS advisers said yesterday that every time a concession was made to the Germans, such as agreeing for them to hold parity with any stake France held in the combined business, there would suddenly be a new demand.

For example, in a video-conference call between all the parties on Friday – with Britain represented by Bernard Gray, the Financial Times journalist-turned-Ministry of Defence mandarin – the German economic adviser Lars-Hendrik Roller suddenly revived calls for the merged group's headquarters to be in Munich.

"Nobody took that demand very seriously," an EADS adviser said, but it was a sign that Germany would use any excuse it could to block a deal. "Their general perception was that this deal would turn a German-French entity into a British-French group. Other than that, there isn't a rational explanation for how the Germans have behaved."

Even before that call, advisers were telling Tom Enders, the EADS chief executive, that he would have to abandon the deal if Germany didn't start to give ground. Progress was so slow that there was simply no point asking for an extension to yesterday's deadline.

Even EADS insiders admit that it was paying a "full price" for BAE, but the deal offered Mr Enders the chance to dilute the governmental interference that has dogged his company for so long.

The British Government was convinced that the deal was the best way of saving British jobs. In recent years, BAE has been forced to find all the savings it can to retain its leading financial position in the global defence sector.

However, David Cameron could not persuade Angela Merkel of the benefits, particularly as the German Chancellor had her own concerns over jobs. It has been reported that Ms Merkel was determined to make sure Germany maintained a dominant position in EADS to ensure that the fate of staff remained in state hands rather than being decided in Toulouse or Farnborough.

Ms Merkel has got her wish: sources said yesterday that there was almost no chance that Mr Enders would revisit the merger when takeover rules allow him to do so in six months' time.

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