$45 billion. Deal or no deal?
A possible merger between British BAE Systems and European Aeronautic Defense and Space collapsed due to German Chancellor Angela Merkel’s refusal to sign off on the deal, as well as a concern for the confidentiality of U.S. Department of Defense contracts with BAE Systems. If the five governments – the U.S., U.K., Spain, Germany and France – had agreed upon a deal, they would have produced the world’s largest aerospace defense company.
“It could create a genuine defense-aerospace industrial champion for Europe,” Alexander Nicoll, military expert at the International Institute for Strategic Studies in London told The New York Times. “Indeed, the deal would be a natural reaction to the prospect of shrinking defense-equipment markets.”
EADS is the world’s second largest aerospace and defense company, specializing in the manufacture of commercial and military aircraft. British BAE Systems is the U.K.’s largest defense contractor and one of the largest suppliers to the U.S. Department of Defense.
One main issue for merger’s disapproval was the potential release of U.S. military contract information to other governments.
“If other countries got a hold of our secret contracts they’d be able to better prepare for us knowing that information,” said former Marine aircraft mechanic Joe Logan, who now works maintenance for Guilford College. “We definitely should be wary of the merger because we don’t want anyone tapping into our secret resources and knowing our capabilities.”
The U.S. government holds military defense information in strict confidence and was concerned about the transparency of information that might follow a merger.
“(The United States wants) to protect secrecy of BAE’s national security operations in the U.S.,” according to the Wall Street Journal. “The U.S. last year accounted for more than 40 percent of BAE’s $31 billion in revenue. A significant part of this came from sensitive operations.”
Problems arose from various governments in seeking a collective agreement on this mega-deal throughout negotiations.
“The critical issue is what the government ownership will be,” an anonymous source with direct knowledge of the talks said to The New York Times. “The only reason not to do a deal would be around government ownership.”
Britain’s Secretary of Defense Philip Hammond said Britain was prepared to block the merger unless the governments of France and Germany reduced their EADS stakes. Specifically, Hammond said he recommended vetoing the deal if it would give France and Germany control of EADS.
“Angela Merkel took Tom Enders (EADS chief executive) by surprise,” said Dick Olver, chairman of British BAE Systems, to The National. “He didn’t expect her to be so negative. She was the one who made the deal not go ahead.”
““France wants to keep a stake but will not rule out adding more,” an observer told the New York Times.”Other countries did not want to miss out on the opportunity to profit from this massive merger and showed support for the deal. Yet, there was concern about an unequal balance of control among countries.
“France wants to keep a stake but will not rule out adding more,” an observer told The New York Times. “Germany wants to match France’s role to avoid being left aside by Europe’s other main powers, and Britain wants to cap state involvement.”
Great Britain, Germany and France refused to finalize the historical deal due to their roles within the merger.
“I’m ready to admit that we never expected to face such opposition against the deal, in particular not in Berlin,” Enders said in a letter to employees.
