Abortive BAE Systems merger: EADS roll

The anti-European sentiment in Britain is sustained by a powerful mix of tradition and sentiment. The strongest card of those who are committed to our nation playing a full part in the continent’s affairs is, in the main, frustratingly vague by contrast: gains from trade, and the hard-to-pinpoint jobs that it creates. Occasionally, though, those gains from co-operation can become suddenly plainer to see. One such moment arrived when the prospect of a merger between BAE Systems and EADS promised to create an aerospace and defence giant might have rivalled American giants like Boeing. Another arrived on Wednesday, when that prize fell away, for reasons that are (at their root) about the long history of narrowly Anglo-Saxon attitudes in British commerce and politics. The immediate cause of the deal’s undoing appears to be Britain’s insistence that government-appointed bosses should not be in overall command. That is not, contrary perhaps to expectations, because of some crude flag-waving fear of French and German directors on part of the UK government. To its credit, the coalition had initially approached the deal with open-minded pragmatism. Rather, Britain’s insistence reflects the fact that the dirigiste management of French elements are anathema in an American market which has steadily become the alpha and the omega of BAE Systems’ ambitions. US would probably bar sales from such a state-backed operation, meaning that Britain could not sign off on the deal without signing death warrant on this central thrust of BAE’s established strategy. So the state stepping back became non-negotiable. And, in the end, this red line turned out to cross with that of Germany. When it came to a strategic industry that has developed in a parallel commercial world, with different norms from British one, it transpired that Berlin was simply not willing to step back and let the market rip. How different it could have been if, instead of always looking to America first, Britain’s military-industrial complex had been more serious about Europe. Remember Westland helicopters back in 1986, where Margaret Thatcher’s determination that Britain’s last helicopter manufacturer should throw in its lot in with American firm Sikorsky sank Michael Heseltine’s hopes of a European consortium. It might have seemed an obscure issue for such fierce dispute at the time, but Britain’s withdrawal from Airbus decades later revealed consequences of treating the continent as an afterthought. BAE remains for now UK’s biggest manufacturer. But failed merger advertises its vulnerability in an era of shrinking defence budgets. Lack of a manufacturing strategy has never looked more painful. (source: Editorial – The Guardian, UK – 11/10/2012)


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2 Responses to Abortive BAE Systems merger: EADS roll

  1. (…..) A person close to the negotiations added that while Germany had proved to be the biggest obstacle, there were still differences to resolve between France and the UK that had not been cleared by Tuesday night’s flurry of calls, even if there had been more substantial progress between London and Paris. It is understood that every solution proposed drew an objection from one of the three governments. France, which controlled 15% of EADS directly, was unhappy with German demands for the business to have its headquarters in Munich, while Germany was concerned that France could end up with a bigger shareholding in the new business than the 9% it was seeking. The UK, in turn, refused to allow German and French political representatives to sit on the BAE board, as would have been likely under the dual-listed structure envisaged by both companies. The UK’s largest trade union, Unite, said a merger would have “protected the UK’s long-term interests” if it had been accompanied by a jobs guarantee for British employees. BAE employs 37,500 people in the UK and is Britain’s largest manufacturing employer. Ian Waddell, a Unite official, said the UK government could secure such a guarantee in future mergers or takeovers by taking an equity stake in BAE. Although the British government has a “golden share” in the business, which can block a foreign takeover, it does not control a significant block of shares similar to France’s stake in EADS. When their indirect and direct shareholdings are taken together, France and Germany each control 22.35% of EADS. “It was an unequal negotiation with France and Germany,” he said. Ben Wallace, the Conservative MP for Wyre and Preston, who organised a petition against the deal signed by 45 MPs, said the deal should never have been promoted due to the threat of French and German political interference. Wallace said the collapse of the merger put the future of BAE boss King, and his board colleagues, at risk. “The BAE board should now reflect long and hard at what their strategic error could mean for the company’s future. If they have put at risk my constituents’ jobs and fatally wounded the UK’s jewel in the manufacturing crown, then they should consider their position.”


  2. The failure of the massive merger of EADS and BAE shows more clearly than ever the degree to which politicians influence the European defense industry. The Continent missed a prime opportunity to fix the problem, argue German commentators (…..)



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