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Germany 'blocks giant aerospace merger'

The Local · 11 Oct 2012, 06:51

Published: 11 Oct 2012 06:51 GMT+02:00

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The two groups issued a statement announcing the failure, and quickly reticence from Berlin was seen as the deciding factor.

"Im ready to admit that we never expected to face such opposition against the deal, in particular not in Berlin," EADS chief executive Tom Enders said in a letter to employees.

Enders noted however the "strong efforts by the French and UK governments" to overcome what proved in the end to be "insurmountable" hurdles facing a tie-up that would have created a €35 billion aerospace giant.

It had looked late on Tuesday as if France had opened the way for an extension of the talks, with sources saying Paris had agreed to limit its shareholding.

But observers said Germany torpedoed the deal to create a global giant, because the power behind the civilian arm of the new group would shift completely to Toulouse in southern France where airliner maker Airbus is based.

Berlin was also said to reject that the group's military operations would be run from London where BAE Systems is based leaving Germany empty-handed.

Asked whether BAE Systems had found more agreement with France than with Germany in the tie-up talks, BAE chief executive Ian King told reporters: "That would be an accurate representation."

But German Defence Minister Thomas de Maiziere, on a visit to Brussels, said he had taken note of opinion pointing a finger at Germany and was "not totally surprised," but added he "did not share" that point of view.

"It's an entrepreneurial decision," Maiziere said. In Berlin, government spokesman Steffen Seibert said it "was now crucial that EADS grow on its own."

"For the German government, the priority now is that EADS continues to develop positively in all its business activities."

French President Francois Hollande also said the decision to call off the merger stood with the firms. He said his government had explained to the company directors "what we could accept and what we could not allow."

"All these elements were given to the companies. After that it is their choice," Hollande said, underlining that the breakdown in the merger talks was "neither a cause for regret nor a reason to rejoice."

Under British financial market regulations, EADS and BAE Systems were bound to say by Wednesday evening in London whether they planned to pursue a merger.

With the companies now going their own way, BAE Systems is seen as a potential target for being taken over or being broken up.

The two groups insisted that the deal had been based on "sound industrial logic" which "represented a unique opportunity to create a combination from two strong and successful companies greater than the sum of the parts."

Shares in EADS leapt higher in Paris on the news, while those in BAE Systems fell in London.

The groups had aimed to form a company bigger than US rival Boeing across the civil and defence fields. The main sticking point was initially believed to have been reluctance by France to meet demands by Britain.

Germany was always watchful meanwhile that it obtained as many votes in the company as France.

Story continues below…

In London, shares in BAE ended the day 1.38 percent lower to 320.9 pence, while EADS shares leapt by 5.29 percent to 27.48 euros in Paris.

EADS wanted to expand in the United States and gain better access to a civil aviation market which is forecast to grow in coming years, to reinforce its defence activities, and to broaden its cost base from euros into dollars, the currency of aviation sales.

But US authorities were also following the merger talks closely because BAE Systems is a supplier to US defence industries, and the United States is wary of state interference in the management of its defence contractors.

BAE employs 83,600 people, mainly in Australia, Britain, India, Saudi Arabia and the United States, and reported sales last year of 19.154 billion pounds (23.83 billion euros, $30.67 billion).

EADS employs about 133,000 people at more than 170 sites worldwide, and posted 2011 sales of 49.1 billion euros.


The Local (news@thelocal.de)

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Your comments about this article

11:25 October 11, 2012 by lenny van
If I understand the situation correctly, this merger made economic sense and was good for Europe and every other participant. The one exception was Germany, which, not surprisingly, demanded more control, more control, more control, more control.

Please, Germany, leave the E.U. and join Russia and China and form a very powerful Eurasian Union and leave the rest of the European Union countries alone long enough to develop our own social democratic, free trade association of sovereign nations without your ugly presence and your "tricks".

How long will it be before the Eurasian Union will end up in a gigantic power struggle for the psychological commodity, that each of these nations cannot live without, i.e. world control and domination.
14:57 October 11, 2012 by raandy
Hard to understand(for some) why Germany who would most likely be the principal financier of this grand venture and reject this because they would have to take a back seat to France and England.
17:45 October 11, 2012 by reallybigdog
The deal was not good for Germany and that's a business decision pure and simple and other opinions don't really matter.

If Germany is going to dilute its current position in EADS below that of France and the UK when and if Lagardère also sells its shares to France then I would say no to the deal as well as control/benefit is equally important for Germany. It also appears that other dont want BAE for the following reasons;

The only real benefit is BAE¦#39;s North American operations and they remain Germany would be wary of adding political risk that would come with being the UK government¦#39;s prime contractor by pursuing the whole company.

There have been American merger conversations for decades regarding BAE however buying the whole BAE met with the same conclusions above, with golden share and other things like dual-listing, dual-incorporation structure just not worth it!

EADS stock is up by the way so the breakup has been positive!
21:51 October 11, 2012 by sonriete
Maybe Merkel looked at the example of Aventis, where like so many times where the French and Germans are supposedly equals, the French state lyes in wat and then when the moment is right they pounce and we see it is all French controlled. I understand Aventis was gobbled up by the French Sanofi, and the headquarters iand best paying jobs are in Paris now.

From a business perspective the EADS part of the combined company should have been headquartered in Munich. The business climate is better in Germany, top executives would not be scared of by 75% taxes and Munich is a an important international city with a major airport with direct flights to all of Europe and other continents. Toulouse is a one company town, but French bullying dictated that the whole civilian headquarters would be there.

Boeing in fact moved its headquarters from Seattle, where most of its factories are to Chicago, precisely because it makes sense for a headquarters be in a more major city, apart from all the factories.

So you see even at this point French politics was interfering.
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