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Berlin blasted for ruined EADS-BAE merger

Germany was under fire, the European aerospace industry in search of a new future, and EU credibility undermined on Thursday with the failure of a merger by EADS and BAE Systems.

Berlin blasted for ruined EADS-BAE merger
Photo: DPA

The fiasco was a huge blow to European ambitions because Germany, France and Britain were unable to seal the deal, and the immediate losers are the two companies, analysts and press comment stressed.

German newspapers blamed the government of Angela Merkel in Berlin for shooting the deal down and damaging the EU in a misguided drive to protect German jobs.

EADS is now faced with rethinking its strategy and BAE Systems faces tough options and could be taken over, some analysts said.

But the board of the European Aerospace Defence and Space Company (EADS) reaffirmed its support for chief executive Tom Enders on Thursday.

At BAE, chairman Dick Olver and chief executive Ian King said that despite the setback, the company remained “strong and financially robust” and looked “to the future with confidence.”

Amid recriminations over who was to blame, French President Francois Hollande and German officials said the final decision had been taken by the firms.

But analysts said the companies were left with no choice but abandoning the scheme with only hours left before a deadline under British merger rules.

EADS and BAE Systems were salvaging what they could from the end of their merger strategy, but the collapse of negotiations on Tuesday raised far bigger questions about how EU governments work together.

These were highlighted by excoriating comment in German newspapers which described the failure, widely blamed on Germany, as a “disaster” and a big blow to the “European dream.”

The mass circulation Bild accused the German government of “lacking courage” and damaging the European Union. Germany had “missed an opportunity,” it said.

The business paper Handelsblatt was more direct, referring to “the end of the European dream.”

And Süddeutsche Zeitung declared that Merkel’s ministers “took the wrong road in wanting to control EADS.”

It said: “The defence of German jobs is not determined by a state’s shareholding but by the success of its products and its competitiveness.” The failure of the deal was a “disaster”.

Elections take place next year in Bavaria, where EADS has substantial activities and then Merkel faces national elections. The risk that voters would have seen a merger as a threat to jobs is believed to have weighed heavily with Merkel.

In France by contrast, Hollande is in his first year as president. But he is struggling in the polls against a perception that his administration is weak at home and playing number two to Germany in the eurozone debt crisis.

France is believed to have made a big and untypical concession to Britain by agreeing to limit its shareholding.

Experts in European defence said that abandonment of the attempt to create the biggest aerospace group in the world was mainly a political failure.

But it would not stop consolidation of European defence industries, ever more necessary because of pressure on defence budgets.

‘We could not push on’

“It is not a good sign for Europe’s defence industry because the three countries that really count could not find a way to agree,” said Jean-Pierre Maulny, deputy director of the Institute for Strategic and International Relations in Paris.

At the Carnegie Europe think tank, director Jan Techau said that the merger should have been “a demonstration of the shared ambition” on European defence between France, Germany and Britain, but had shown the opposite.

The director for strategy and marketing at EADS, Marwan Lahoud, said the collapse of the deal opened new possibilities for the group which is based mainly on the Airbus airliner maker.

But BAE Systems issued a cautious statement talking of “modest growth” and confirmed its profit outlook amid “uncertainty” over cuts in defence spending in the United States where the firm does about 45 percent of its business.

Lahoud told Les Echos newspaper: “There is more of a future for a group like EADS,” and failure of the deal should push the company to “reopen the field of possibilities.”

He said that a “formidable opportunity has just been missed” but the group had a clear strategy for diversifying geographically and in terms of industrial activities.

The two firms had been unable to convince Germany of the strategic value of the deal or that Germany’s interest would not be diluted, he revealed.

“In reality, there were never any negotiations with them,” he said. “From the moment that the (German) government said no, we could not push on.”

Some analysts had warned that Germany feared being sidelined, with the heart of airliner maker Airbus being settled firmly in Toulouse, southern France and the hub of the defence activities going to London where BAE Systems is based.

For all three governments the tie-up raised difficult issues of prestige, national security, plant closures and job cuts.

On Thursday, EADS shares traded 0.90 percent lower in Paris, a day after jumping more than five percent. BAE Systems shares jumped 2.4 percent in London.

AFP/bk

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BUSINESS

Is Germany’s Volkswagen becoming ‘the new Tesla’ as it ramps up e-vehicle production?

When Volkswagen chief executive Herbert Diess joined Twitter in January, he used his first tweet to warn pioneering electric car maker Elon Musk that he was coming after him.

Is Germany's Volkswagen becoming 'the new Tesla' as it ramps up e-vehicle production?
ID.3 cars in the Zwickau, Saxony production plant in March. Photo: DPA

The bold proclamation raised some eyebrows, coming from a carmaker better known for its 2015 “dieselgate” emissions cheating scandal than its green credentials.

But all that has changed since the German group announced an offensive to dominate the electric car market globally by 2025, vowing to set up six battery factories in Europe by the end of the decade.

“Volkswagen is the new Tesla,” declared the Financial Times, referring to the now dominant Californian e-car group founded by billionaire maverick entrepreneur Musk in 2003.

“Our transformation will be fast, unprecedented and on a scale not seen in the automobile industry in a century,” Diess said at VW’s inaugural “Power Day” last Monday, where he fired off a flurry of announcements.

READ ALSO: Volkswagen to spend 60 billion to transition to electric cars

Industry watchers say it’s a credible bet. Bloomberg Intelligence auto analyst Tatsuo Yoshida said Volkswagen “has (the) potential to overtake Tesla’s number one position… in a few years”.

Karl Brauer, an analyst with CarExpert.com, said VW’s “combination of financial resources and manufacturing capacity make it a prime challenger for Tesla’s dominance” — even if catching up with its US rival is “not going to be easy”.

‘Saving face’

Diess, who has headed the 12-brand VW group since 2018, has never hidden his admiration for Musk, whose brash and unconventional ways have a habit of disrupting markets.

The two men have a friendly relationship and regularly exchange emails, according to an insider.

If the aim of Diess’s carefully choreographed “Power Day” was to capture some of the enthusiasm of a Battery Day Tesla held late last year, particularly in the United States, it appears to have worked.
Diess’s announcements saw US investors flock into Volkswagen shares, including many small traders using online platforms.

In just a week, the Wolfsburg-based car giant gained 15 percent on Frankfurt’s blue-chip stock exchange, giving the group a market capitalisation of more than 130 billion.

The rise puts Diess’s 200-billion-euro target within reach but he has a way to go before matching Tesla’s $619 billion valuation.

VW’s “forced transition” towards more environmentally friendly cars has now been “recognised by the market”, said Eric Kirstetter, an auto sector expert at the Roland Berger consulting firm.

VW ironically owes its change of course to the dieselgate scandal, which forced the group into “a face-saving dive into an all-in electro-mobility strategy”, said Germany-based industry analyst Matthias Schmidt.

The Volkswagen E-Golf in production in Saxony in March 2018. Photo: DPA

Industry watchers note especially its decision to focus on developing a single platform for all its brands which could well be the game changer for the German giant.

The platform was used for the first time on the ID.3 model which launched late last year. UBS analyst Patrick Hummel called it “the most significant bet on electric vehicles made by any legacy carmaker to date” as VW’s competitors are using mostly mixed platforms and a combination of technologies.

READ ALSO: Volkswagen to slash up to 5,000 jobs to fund electric vehicle drive

Not Apple but Samsung

VW’s move is aimed at achieving economies of scale for its 12 brands.

“Tesla is learning what is takes to move into high volume, whereas companies like Volkswagen already have volumes and it’s just a matter of switching volumes from one platform to another which they have done routinely in the past,” said Subodh Mhaisalkar, executive director of the Energy Research Institute at Singapore’s Nanyang Technological University.

But VW’s size also comes with its own disadvantages — consensus has to be found for each major decision not only with the powerful head of the workers’ committee but also with managements of the group’s various brands.

Beyond the core electric technology, Volkswagen is also playing catch up with Tesla on the just as important software.

Ben Kallo, an analyst at US investment bank Baird, believes Tesla will remain the market leader on electric cars because of its advances in battery cell production and autonomous driving.

“VW might not be the Apple but the Samsung of the electric vehicles world,”UBS said in a report.

On Twitter, Diess is still 49 million followers short of Musk.

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