UK will vet BAe-Marconi merger

THE GOVERNMENT has won its battle with Brussels to vet the pounds 7.3bn merger between British Aerospace and GEC's Marconi defence business.

Stephen Byers, Secretary of State for Trade and Industry, is expected to announce shortly that the deal will be examined by the UK competition authorities and not the European Commission's mergers taskforce.

The decision will anger the French and Germans, who lobbied hard for the deal to be vetted in Brussels. Although the EC competition authorities will still have the power to examine the civil aspects of the merger, these are comparatively insignificant.

The decision by BAe and Marconi to opt for a "British solution" to defence restructuring ended merger talks between BAe and DaimlerChrysler Aerospace (Dasa) of Germany and quashed hopes of an electronics merger between GEC and Thomson-CSF of France.

Jurgen Schrempp, Dasa chairman, has since warned that the BAe-Marconi deal has killed any chance of creating a single European aerospace and defence company.

The UK's success in wresting the merger from Brussels means that it will be examined by the Office of Fair Trading, which will submit a recommendation to ministers after a six-week investigation.

Senior BAe and GEC executives remain confident the deal will avoid a referral to the new Competition Commission and believe it could be approved by the summer.

Under its terms deal shareholders will receive 1.17 billion BAe shares, giving them a 37 per cent stake in the enlarged company. BAE will take on pounds 1.55bn of debt and pay GEC a further pounds 440m in loan stock.

The merger will create the biggest defence contractor in Europe and the third-largest in the world, with combined sales of $20bn (pounds 12.3bn) and could produce pounds 275m of savings a year. The cost of implementing the merger will be around pounds 200m.