October 08, 2012
Credit: Photo Credit: Benet Wilson
BAE Systems insists there is “no magic number” for French and German government shares in a possible merger with EADS, but U.S. experts say anything over 10 percent could ruin the chances of winning approval from U.S. regulators.
Britain has told France and Germany repeatedly that their respective holdings in the merged firm should not exceed 10 percent, according to several sources familiar with the process.
BAE and the British government want to keep government shareholdings and rights in the proposed merger as low as possible, concerned that larger stakes could unravel the deal.
U.S. experts say stakes of 9.9 percent and lower have been viewed as generally “benign” in the past, which should allow the combined company to keep working on sensitive U.S. military and intelligence projects without Washington demanding divestitures or creation of a more restrictive proxy board.
Either of those two conditions would prompt BAE to abandon the merger talks, according to BAE executives.
British Defense Minister Philip Hammond told BBC radio on Sunday that Britain would block the $45 billion merger if certain conditions were not met, including a requirement that neither Germany or France could have a stake large enough to allow them to control the combined firm.
“That has been a BAE red line from the day one,” one adviser to BAE told Reuters. “If the Department of Defense forces us to cross a point where there’s going to be a divestiture or a proxy or something like that, that’s the end of the transaction.”
Britain and BAE also want France and Germany to agree to lock in the new ownership structure, averting future changes that could increase the governments’ shares. Any changes in the ownership structure would also trigger a fresh U.S. review.