The much-hyped merger between BAE Systems and EADS has collapsed after inter-governmental talks failed to reach a resolution.
In a statement released today, BAE Systems and EADS announced that they have decided to terminate their merger discussions, saying that “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.”
Ian King, chief executive of BAE Systems, said: “We are 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,” it continued.
The proposed deal had raised issues of national security over the acceptable level of state-owned shares in the new aerospace and defence entity. Defence Secretary Philip Hammond stated he would use the government’s golden share to veto a deal if the stakes held by the French and German governments of the new company were not limited to 9% each.
The collapse comes ahead of today’s 5 pm regulatory deadline to either close the deal or ask for an extension.
Tom Enders, chief executive of EADS, said “it’s a pity we didn’t succeed but I’m glad we tried.”
“I’m sure there will be other challenges we’ll tackle together in the future,” he added.
BAE Systems and EADS retaliated to an announcement by BAE’s largest shareholder Invesco which said it “does not understand the logic for the proposed combined company.”
“We believe that the merger was based on sound industrial logic,” read the statement released by BAE Systems and EADS.
“The merger 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. BAE Systems and EADS are, however, confident that these would have provided a strong case to take to their shareholders.”
Between themselves, BAE Systems and EADS had agreed the principal terms of the merger, subject to the approval of their respective boards.
The two companies are disappointed that they could not explain the industrial benefits of the merger due to government sensitivities that led to shareholders saying that they were being left in the dark, with many questions left unresolved.
In a statement to the London Stock Exchange, Invesco said it was “very concerned that the level of state shareholding in the combined group will heavily impair its commercial prospects – especially in the United States.”
