October 11, 2012
The collapse of merger talks between EADS and BAE Systems raises serious questions about the future course of both companies and shows how much influence European governments have over EADS.
The two companies called off their planned merger Oct. 10, hours before the expiration of a deadline set by a British takeover commission. Executives mustered last-ditch efforts to save the deal, but it had become increasingly clear since late last week that political reservations could not be overcome.
The proposed transaction was announced four weeks ago and would have led to the creation of the world’s largest aerospace company, with annual sales of about $100 billion, far surpassing current market leader Boeing. The combined entity would have had a balanced portfolio of civil and defense business.
EADS now faces even stronger government influence than in the past. In Germany, Daimler on Wednesday confirmed it still plans to sell an initial part of its stake in EADS to the German government by year-end. In France, a 7.5% stake held by Lagardere Group has been for sale, and with the collapse of the merger, the government is again free to buy it.
Strategically, EADS will have to deal with a defense division that will remain weak compared with its competitors, and Airbus will continue to be its main source of revenues and profits.
Industry speculation to the contrary, BAE Systems CEO Ian King says the company has no plans to find another merger partner and expects no management changes.
Sources close to the negotiations say the deal failed because the German government blocked it. They add that it was difficult entering negotiations with the Germans, who provided little feedback to proposals that included far-reaching job guarantees and an important role for Germany as a site for part of the combined entity’s headquarters. Also, Germany would have been allowed to buy a stake of up to 9% in the merged entity.
“It is, of course, a pity we didn’t succeed, but I’m glad we tried,” EADS CEO Tom Enders says. “I’m sure there will be other challenges we’ll tackle together in the future. EADS will continue on its international growth path, and our shareholders can continue to expect profitable growth, excellent liquidity and program execution based on a strong order book.”