Additionally, Lockheed Martin appears to be focused on delivering on the F-35 program, rather than taking on the problems of integrating a large entity. Northrop Grumman has just divested several units, and whether other potential candidates—such as Boeing—would seek to increase their already sizeable exposure to the U.S. defense market appears doubtful.
Governments were not the only ones to question the merger's merits. Invesco Perpetual, an investment fund and BAE Systems' largest shareholder with a 13.3% stake, slammed the deal in a public statement timed roughly a day before the merger deadline. The fund wrote that it has “significant reservations regarding both the [merger] proposal and its long-term impact on value for BAE Systems' shareholders,” going on to say that it “does not understand the strategic logic for the proposed combination of EADS and BAE Systems.”
Invesco also argued that the deal would “materially jeopardize BAE's unique and privileged position in the United States defense market” and that it has been unable to identify any corresponding benefits to offset this risk.
EADS Chairman Arnaud Lagardere also said he was unhappy with the terms of the proposed transaction and wanted more concessions before agreeing to it.
The proposed merger announced four weeks ago would have created the world's largest aerospace group, with sales of around $100 billion, far surpassing the current market leader, Boeing. The combined entity would also have had a portfolio more balanced between civil and defense businesses.
According to sources close to the negotiations, the deal failed because the German government blocked it. Those sources note that it was difficult to even conduct negotiations and there was little agreement on key proposals, which included far-reaching job guarantees and an important role for Germany as the site for part of the combined entity's headquarters. Germany also would have been allowed to buy a stake of up to 9% in group.
“It is, of course, a pity we didn't succeed but I'm glad we tried,” EADS CEO Tom Enders says. In a letter to employees, Enders admits that “we never expected to face such opposition against the deal, in particular not in Berlin.” He adds that “we will need to review our group strategy and defense activities in particular.”
BAE's King says he was “obviously disappointed.” However, he adds that “our business remains strong and financially robust.” BAE Systems was not prepared to do anything that would have compromised its important U.S. business, he notes, indicating that concerns over government influence played a key role in the decision.
According to King, EADS and BAE Systems will not resume talks until the political landscape surrounding a possible deal has changed materially.
Both companies say it wasn't business logic that prevented the transaction. Instead, they say, “It has become clear that the interests of the parties' government stakeholders cannot be adequately reconciled with each other or with the objectives that BAE Systems and EADS established for the merger.”