Editorial: An unsuitable corporate match

 

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On paper, it is easy enough to make a case for a merger between the British defence giant, BAE Systems, and Europe's largest aerospace group, EADS. For BAE, the benefits of better access to the EU at a time of cutbacks in its major US market are not to be sniffed at. For EADS, sufficient heft to take on the might of Boeing would be welcome.

Were the tie-up to go ahead, the result would certainly be vast: a sprawling conglomerate with more than 200,000 employees, selling everything from bullets to spacecraft everywhere from Brazil to Saudi Arabia. But reality is rather messier than the theory supposes.

Even the apparently simple matter of brute size is not as certain as it seems: considerable pruning may be required to satisfy the multiple monopolies watchdogs that must sign off on the deal. Then there are the all-important "synergies". Given the sensitivities of, say, BAE's relationship with the Pentagon, the combined group will need so many Chinese walls – to prevent one part of the business learning too much from another – as to undermine much notion of economies of scale.

And, finally, there is the politics. For EADS, part of the attraction is the dilution of the restrictive influence of the French and German governments, which own nigh-on a quarter of the company each and require top management positions to be shared equally between their nationals. But with Paris, Berlin and London all set to retain a say in the combined group, it will hardly be less complex (or more efficient).

Indeed, the clearest warning of the dangers ahead must surely be EADS's own Eurofighter project. Building a new fast jet is, of course, never simple. But the involvement of multiple European governments, each with their own technical variations and their own industrial priorities, caused serial delays and massive cost overruns.

No wonder then that, after some initial exuberance among BAE's shareholders, the stock prices of both companies plunged yesterday. Quite right. The theory of the deal is fine; putting it into practice is another matter.

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