BAE and EADS scrap merger talks

DEFENCE giants BAE Systems and EADS have scrapped merger plans.

A statement said BAE and EADS believed that a merger was based on sound industrial logic and represented a “unique opportunity to create a combination from two strong and successful companies”.

But they were unable to “reach an acceptable agreement with our various government stakeholders”.

The UK government holds shares in BAE and the French and German administrations have interests in EADS.

Defence secretary Philip Hammond had warned he would block the deal if the terms if the French and German governments did not reduce their stakes, and German Chancellor Angela Merkel was said to have opposed the proposal to combine EADS’ Airbus passenger aeroplanes with defence contractor BAE.

The statement said: “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.

“BAE Systems and EADS have therefore decided it is in the best interests of their companies and shareholders to terminate the discussions and to continue to focus on delivering their respective strategies.”

BAE employs around 15,000 people in the North West at sites in Lancashire, Cumbria and Cheshire. EADS has around 6,000 staff at an Airbus wing factory near Chester.

The statement added: “The merger would have produced a combined business that would have been a technology leader and a greater force for competition and growth across both the commercial aerospace and defence sectors and which would have delivered tangible benefits to all stakeholders.”

Discussions with the relevant governments had not reached a point where both companies could fully disclose the benefits and detailed business case for this merger, said BAE.

“BAE Systems and EADS are, however, confident that these would have provided a strong case to take to their shareholders.”

BAE Systems and EADS had agreed the principal terms of the merger, subject to the approval of their respective boards. These included the commercial terms, the legal structure, governance arrangements, a unified management and board structure, and a cost saving strategy.

BAE chief executive Ian King said: “We are obviously disappointed that we were unable to reach an acceptable agreement with our various government stakeholders. We believe the merger presented a unique opportunity for BAE Systems and EADS to combine two world class and complementary businesses to create a world leading aerospace, defence and security group.
 
“However, our business remains strong and financially robust. We continue to see opportunities across our platforms and services offerings and in the various international markets in which we operate.  We remain committed to delivering total shareholder value and look to the future with confidence.”

* In an interim management statement for the period since July, BAE said it expects “modest growth in underlying earnings per share” as long as a satisfactory conclusion is reached on pricing negotiations with a Saudi Arabian Typhoon Salam fighter jet contract.

“A higher level of operating business cash inflow is planned for the group in 2012 including the anticipated benefit of cash receipts related to the Salam programme”, said the company.