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BAE-EADS Merger Could Reduce U.K. Govt. Influence

Sep. 25, 2012 - 12:30PM   |  
By ANDREW CHUTER   |   Comments
Talks to merge aerospace group EADS and defense contractor BAE Systems are deadlocked, sources close to the talks said Oct. 5, with the governments of France, Germany and Britain at odds over the outcome.
Talks to merge aerospace group EADS and defense contractor BAE Systems are deadlocked, sources close to the talks said Oct. 5, with the governments of France, Germany and Britain at odds over the outcome. (AFP)
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LONDON — The British government will have to block the proposed merger between BAE Systems and EADS or risk losing influence over the future of the nation’s defense and aerospace industry, especially if its counterparts in France and Germany insist on retaining significant political control in an expanded company, said a leading London-based think tank Sept 25.

There is a third option, though, said Chatham House director Robin Niblett. The British government could buy its own stake in a merged company to counterbalance the influence of its Continental partners.

“Depending on how the negotiations go, the U.K.’s coalition government may be confronted with a most unexpected and intriguing challenge: whether or not the government should acquire its own stake in the merged company,” said Niblett.

The Treasury would be aghast at the idea, but if the “U.K. wants to be a core partner in this initiative, then it may find it needs to commit to a more Continental European approach to its success and buy itself a stake in the new company. .... It might also allay some of the U.S. concerns about the perceived risks of the size of the French and German government shareholdings in the merged company,” said the Chatham House boss.

Not only the Treasury, but EADS Chief Executive Tom Enders might be similarly horrified. Part of his reasoning for the merging with BAE is said to be a desire to minimize political influence in EADS, particularly from the French government.

Howard Wheeldon, the director of policy at ADS, the British trade lobby organization, said that if the three governments, plus Spain, a minor shareholder in EADS, reach an agreement, it will likely be through a series of guarantees relating to manufacturing plants and capabilities rather than other mechanisms.

Senior British politicians appear to have been edging toward supporting the proposed tie-up in the last few days while their counterparts in Paris and Berlin remain uncommitted after separate talks among the three heads of state over the last few days.

Britain’s parliamentary defense committee announced yesterday it was launching an investigation into the proposed merger, citing concerns over jobs, sovereign capabilities, the future of the defense industrial base and the U.K.’s relationship with the U.S. among its concerns.

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