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EADS, BAE Merger on the Rocks

By Antonio Perez
Epoch Times Staff
Created: October 9, 2012 Last Updated: October 9, 2012
Related articles: Business » Companies
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A combo made of two file photos from 2011 shows the logos for the European Aeronautic Defense and Space company (EADS) and East British arms manufacturer BAE Systems. (Christof Stache, Lindsey Parnaby/AFP/Getty Images)

A combo made of two file photos from 2011 shows the logos for the European Aeronautic Defense and Space company (EADS) and East British arms manufacturer BAE Systems. (Christof Stache, Lindsey Parnaby/AFP/Getty Images)

British defense contractor BAE Systems Plc and the European Aeronautic Defense and Space Co. NV (EADS) are feverishly attempting to uphold their proposed merger, as political jockeying and shareholder unrest threaten to derail the merger plan.

While the British and French governments have already signed off on the 35 billion euro ($45 billion) deal, a Bloomberg report said that German Chancellor Angela Merkel’s government may not be keen on approving the merger between the two aerospace giants prior to the Oct. 10 deadline set by both sides, describing current negotiations as having reached an “impasse.”

The proposal would place the headquarters of the newly combined company in Toulouse, France, with the majority of the defense operations—part of BAE—in the U.K.

In the past, the German-French aerospace giant EADS has had both French and German influence, but a tie-up could hurt German influence over the combined company.

In addition, the top individual BAE shareholder with a 13 percent stake, Invesco Perpetual, has been vocally opposed to the deal.

“Other than diversification—which investors can achieve for themselves more cheaply and simply—Invesco does not understand the strategic logic for the proposed combination,” Invesco said, according to a Guardian report.

Many in the U.K. have expressed confusion regarding the deal, and Ian King, BAE’s chief executive, has yet to clearly lay out the rationale for the merger, according to the Guardian.

The arrangement has other problems as well. The Pentagon has become BAE’s biggest customer, through a wholly owned subsidiary, BAE Systems Inc., based in the United States.

Being French and German-owned, BAE could jeopardize its agreement with the United States over sharing of sensitive technology. Invesco, in a statement, said that the merger “would materially jeopardize BAE’s unique and privileged position in the U.S. defense market.”

EADS is the majority owner of Airbus, a major commercial jet manufacturer, and Boeing competitor. BAE Systems, with a 20 percent stake, is a minority owner.

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