Governments blamed as mega EADS-BAE merger collapses

A merger to create the biggest aerospace and defence group in the world from EADS and BAE Systems collapsed on Wednesday, with analysts saying Germany shot it down to avoid being sidelined. The two groups issued a statement announcing the failure, and a source close to the talks said they fell through because of government opposition, especially from Germany. It had looked late on Tuesday as if France had opened the way for an extension of the talks, with sources saying Paris had agreed to limit its shareholding. But observers said Germany torpedoed the deal to create a giant worth $45 billion (35 billion euros), because the power behind the civilian arm of the group would shift completely to Toulouse in southern France where airliner maker Airbus is based. Berlin was also said to fear that the group's military operations would be run from London where BAE Systems is based. "BAE Systems and EADS announce that they have decided to terminate their discussions," the firms said in a statement. "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." Asked whether BAE Systems had found more agreement with France than with Germany in the tie-up talks, BAE chief executive Ian King told reporters: "That would be an accurate representation." But German Defence Minister Thomas de Maizière, on a visit to Brusssels, said he had taken note of opinion pointing a finger at Germany and was "not totally surprised," but added he "did not share" that point of view. "It's an entrepreneurial decision," Maizière said. Under British financial market regulations, EADS and BAE Systems were bound to say by Wednesday evening in London whether they planned to pursue a merger. In Berlin, government spokesman Steffen Seibert said it "was now crucial that EADS grow on its own." "For the German government, the priority now is that EADS continues to develop positively in all its business activities," . French President Francois Hollande also said the decision to call off the merger stood with the firms. Hollande said his government had explained to the company directors "what we could accept and what we could not allow." "All these elements were given to the companies. After that it is their choice," Hollande said, underlining that the breakdown in the merger talks was "neither a cause for regret nor a reason to rejoice." With the companies now going their own way, BAE Systems is seen as a potential target for being taken over or being broken up. The two groups had insisted that the deal had been based on "sound industrial logic" which "represented a unique opportunity to create a combination from two strong and successful companies greater than the sum of the parts." BAE Systems said it had terminated the talks because some of the governments involved could not reach an agreement. BAE Systems' King said the firms "were unable to reach an acceptable agreement with our various government stakeholders." Shares in EADS leapt higher in Paris on the news, while those in BAE Systems fell slightly in London. The groups had aimed to form a company bigger than US rival Boeing across the civil and defence fields. The main sticking point was initially believed to have been reluctance by France to meet demands by Britain, but also by the firms themselves, for minimal government interference in the proposed group. Germany was always watchful meanwhile that it obtained as many votes in the company as France. In London, shares in BAE gave up 0.43 percent to 322.10 pence in afternoon trading, while EADS shares had leapt by 4.87 percent to 27.37 euros in Paris. EADS wanted to expand in the United States and gain better access to a civil aviation market which is forecast to grow in coming years, to reinforce its arms industry activities, and to broaden its cost base from euros into dollars, the currency of aviation sales. But US authorities were also following the merger talks closely because BAE Systems is a supplier to US defence industries, and the United States is wary of state interference in the management of its defence contractors. BAE employs 83,600 people, mainly in Australia, Britain, India, Saudi Arabia and the United States, and reported sales last year of 19.154 billion pounds (23.83 billion euros, $30.67 billion). EADS employs about 133,000 people at more than 170 sites worldwide, and posted 2011 sales of 49.1 billion euros.