Wrangling halts BAE-EADS tie-up

Πηγή: FT
By Carola Hoyos, Anousha Sakoui, Peter Marsh and James Boxell
Oct 10 2012

Diplomatic efforts to secure the most ambitious defence and aerospace deal of the decade have broken down under the weight of political opposition from Berlin and Paris, people close to the discussions said.

“It’s all looking very negative. The governments have not been able to give us what we want,” said one person close to the companies.

However, neither EADS nor BAE Systems confirmed that they had given up their efforts to forge their €34bn tie-up. They still have several hours before the deadline to agree a deal or seek an extension to their deadline from the UK Takeover Panel.

Two people close to the companies said on Wednesday it was looking unlikely that the two companies would continue negotiations on the deal, and were preparing to announce the end of talks unless there was a last minute move by the Germany, which has been opposed to the planned tie-up.

One of these people said it was more than just an issue over stakeholdings, but that German officials had an “I don’t like it” attitude towards the proposed combination.

Diplomats believe Angela Merkel, German chancellor, is uncomfortable taking a large stake in a company with such a large defence portfolio. Mrs Merkel faces elections next year.

However the people said that there could still be a last-minute extension if there was a “dramatic last minute change by the Germans”. “If the game was up, we would have updated the market,” one of the people said.

Investors on both sides were also unhappy about the potential tie-up, adding pressure to the negotiations.

The collapse of the proposed deal would leave the management team of BAE especially exposed. Ian King, chief executive, and Dick Oliver, chairman, spent the past three weeks briefing investors on the merits of the deal, but faced stiff opposition, including from Invesco Perpetual, which owns 13.3 per cent of the company.

The executives’ willingness to do the deal – which gave many the impression BAE had little other way of achieving short and medium-term growth in a declining western defence market – could lead to a possible break-up of BAE or a takeover by a large US defence contractor, analysts said.

But both those possible outcomes would face hurdles, not least the opposition of the US and UK governments. Several analysts, defence executives, investors and government officials have noted the most likely short-term effect of the collapse of the deal would be to force a change in BAE’s management to one that could better articulate a future strategic direction for the company.

In early afternoon trading, BAE shares were down almost 1 per cent at 322.4p while EADS shares were 0.3 per cent higher at €26.19.