BAE, EADS Terminate Merger Talks
October. 10, 2012: EADS announces [PDF] that they and BAE have decided to terminate their merger discussions.
They confirm what had been widely discussed in the past month, with mounting pressure in recent days:
“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.”
Today was the regulatory deadline for the companies to signal their intent to either pursue or give up on the deal. After news of the merger were apparently leaked last month before the companies were ready to make an announcement, it quickly became clear that conciliating French, German, British and American interests would be a tall order because of diverging jobs and sovereignty concerns. Various press reports say (from unnamed sources) that German Chancellor Angela Merkel was most firmly against the deal, though plenty of spin from all parties has been a staple of this unfolding story.
In reality nobody expressed their unreserved love for the merger. Major private shareholders in both companies – from Lagardere to Daimler to Invesco Perpetual – made their doubts known, often quite publicly. Will EADS CEO Tom Enders survive a botched merger for which he seemed to have preciously little support? Enders argued for a hands-off approach from governments, but this seems curiously naive in a context of waning trust between the French executive and German chancellery, with job scarcity and the Euro crisis in the background, among other factors that were likely to interfere.
Sept. 12, 2012: EADS and BAE Systems have revealed today that they are in talks for a potential merger. Were they to proceed under currently proposed terms, BAE shareholders would end up owning 40% of the resulting group, with 60% for owners of EADS shares. EADS’ board has yet to review the deal. The French, German and British governments would be issued special shares in the combined entity. Some programs would also need to be ring-fenced to accommodate US national security imperatives, by EADS’ own admission. Besides political considerations, such a momentous merger would no doubt take months to get regulatory approval on both sides of the Atlantic.
Rumors that emerged on Bloomberg terminals earlier today were first confirmed by BAE Systems. EADS then scrambled to equally make the talks official, and France’s La Tribune writes [in French] of a “leak coming from London.” According to La Tribune talks started about 3 months ago. Given large swings today on the London and Paris stockmarkets (in favor of BAE and at EADS’ loss), the 40/60 split might have to be revisited. The completion of the sale of Daimler’s shares to state-owned Bankengruppe KfW, and possibly Lagardere’s exit, would probably be part of the overall consolidation.
The City (i.e. London) Code on Takeovers and Mergers compels the two groups to either announce a transaction or that they no longer intend to pursue one by October 10, though they can ask to extend that deadline. The combined 2011 revenue of BAE and EADS surpassed $91 billion at current exchange rates, significantly ahead of Boeing and about twice as much as Lockheed Martin. The military/civilian mix at “BAEADS” would make it look more like the former than the latter, given Lockheed Martin’s much heavier focus on defense.
Back in 2006 BAE sold its 20% participation in EADS’ Airbus. BAE and EADS were created in 1999 and 2000 respectively as the product of pan-European mergers. This further consolidation, to be done via a complex Anglo-Dutch dual listing, will have a lot of hurdles to clear to complete, both with private shareholders and governments.