BAE Systems and EADS, two of the world’s largest defence and aerospace firms, have decided to cancel their planned merger, after talks were thwarted by political deadlock.
The companies said on Wednesday they had “decided to terminate their discussions” over the proposed $45bn tie-up because of conflicting interests between the British, French and German governments.
“It has become clear that the interests of the parties’ government stakeholders cannot be adequately reconciled with each other or with theobjectives that BAE Systems and EADS established for the merger,” the companies said in a statement.
The proposed merger between BAE and Franco-German EADS, the parent of Airbus, would have created a company, with a market value just shy of Boeing’s.
The UK wanted its counterparts to agree to limit their influence in the merged firm in order to maintain BAE’s strong working relations with the US Pentagon.
From the start, investors were sceptical about the deal because of disagreements between the governments of the UK, France and Germany.
All three had to approve the deal for it to go ahead.
“It’s not up to me to regret or rejoice,” French President Francois Hollande said.
“The French state as shareholder made known a certain number of arguments, of conditions. Our German friends had a certain number of criteria that were important to them. The British did the same. And the companies came to their conclusion.”
Tom Enders, the chief executive of EADS, and his counterpart at BAE, Ian King, both expressed disappointment at the outcome.
“It is, of course, a pity we didn’t succeed but I’m glad we tried,” Enders said.
The companies confirmed the end of their discussions just hours before a deadline on whether to go ahead with the merger, ask for more time or call it off.
The chief executives of both companies had emphasised that the merger was sought not out of necessity, but in the hope of leapfrogging Boeing to the number one spot.
A number of concerns were instantly raised, including the scale and location of any job cuts. Questions were also raised about what the deal would do to the delicate balance that Germany and France have achieved in EADS after years of bickering.
BAE’s biggest shareholder, Invesco Perpetual, which owns more than 13 per cent of the group, also relayed its concerns that the merger could threaten BAE’s American defence contracts.
BAE is a central lynchpin of the commercial relationship between the US and the UK.
In the end, it appears that these political questions were just too thorny to pave the way to a deal that would have created a company with annual sales of around $90bn and a combined global workforce in excess of 220,000.
France is the only government that owns a direct stake in either of the two companies, but Germany has long held sway in EADS via shares held by automaker Daimler and private and public banks.
Berlin was arguing for a slice of its own in the new company in order to maintain that historic role.
EADS shares jumped on the news that the merger was off, trading 4.5 per cent higher in early afternoon in Paris. BAE shares recovered earlier losses to trade flat.