The mega-merger between aerospace and defence giants BAE Systems of the UK and Airbus European parent EADS, which between them employ around 6,000 West engineers, is hanging by a thread as today's 5pm deal deadline looms and the German government looks increasingly likely to pull the plug.
Politicians have been grappling with the complexities of state shareholdings with three-way discussions between the UK, France and Germany. All three countries are seeking different assurances over political interference, jobs and workshare. UK politicians are also concerned that European control could impact on BAE's lucrative defence contracts in the US.
Meanwhile the boards of BAE and EADS were this morning locked in last-ditch meeetings to weave a path through the politics and rescue the deal.
UK regulators have insisted on a 5pm deadline today for an announcement on the £28bn marriage of equals. Most observers had expected the firms to ask for a two-week extension but overnight it emerged that Germany is increasing prepared to walk away from the deal.
According to the Reuters news agency, several sources close to the negotiations said German Chancellor Angela Merkel had opposed the merger.
“Merkel is against the deal but has not given reasons,” a source involved in the negotiations told the news agency. A German government spokesman declined comment.
The setback scuppered plans for a statement updating progress and seeking an extension to be released before Europe’s stock markets opened this morning.
The tie-up would create a huge group with interests spanning commercial aeroplanes through Airbus – the world’s largest manufacturer of large passenger jetliners – helicopters, missiles, warships, submarines and fighter aircraft.
Airbus employs around 4,000 people at its Filton, Bristol, plant mainly involved in designing wings, landing gear and fuel systems for all Airbus aircraft. EADS itself has engineering operations on the same site.
BAE has a number of bases in Bristol, including at Filton, where it works on major defence projects for the MoD including next generation warships and cyber security.
Reuters last night reported that an Anglo-French agreement over State shareholdings was close, making an extension of the deadline more likely. The French government has a 22.5% stake in EADS. However, the position of the German government, which also controls 22.5% of EADS through its holding in engineering group Daimler, was less clear, with some commentators acknowledging concerns in Berlin over the French position. Both would get at least 9% of the merged group. However Germany appears to be seeking guarantees over jobs and its ability – or lack of it – to influence decisions in the super-group.
While the UK has no influence over EADS, it holds a so-called golden share in BAE which it could use to block a merger. While the UK Government is said to see benefits in the merger, BAE's largest shareholder Invesco, which owns 13%, has voiced serious concerns.
Unease in the US – the key target market for the merged super-group – is also casting a shadow over the deal, which is aimed at challenging Boeing in its home market. Many analysts believe Washington would be reluctant to give major defence contracts to a group with such close ties to European governments.
BAE already earns around 50% of its revenues in the US, where it has been active in acquiring specialist defence and security firms.
