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Coffee House

Whitehall’s mistake over BAE and EADS

11 October 2012

5:48 PM

11 October 2012

5:48 PM

There have been some sharp responses to the demise of the proposed BAE EADS merger. My personal favourite is John Redwood’s pithy:

‘Several of you wrote in expressing dismay at the proposed tie up between BAE and the Franco German civil aviation company. I did not write about it, as I assumed it would be an impossible deal to execute. The documentation was very voluminous, so I did not bother to read it. The politics were always likely to bring it down, so there was no need to analyse the business, economic and strategic issues.’

There seems to be little surprise that the deal collapsed. Most commentators welcome the failure, despite the commercial sense of the proposal. Douglas Carswell, for instance, hopes that it might lead to more competition within defence procurement. And the FT says (£) that the ‘correct decision’ was to put the doomed negotiators ‘out of their misery’.

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The apparently foreseeable problems are political, with Angela Merkel copping the ‘blame’ in the British press (£) for refusing to accept BAE’s ‘red lines’ over the limitation of ‘quantum control’ of EADS’ government shareholders, which would have been vital in maintaining BAE’s lucrative relationship with the US government.

Plenty of talking heads suggest that the British government knew of the German position months ago. If accurate, those reports prompt the question: why was Whitehall so hot for such an unlikely deal? It is understood that, in addition to the discussions between the companies, the British government was more actively involved in brokering an agreement with the French and Germans, which is apparently a sign of its desperation to protect skilled manufacturing jobs at BAE after the firm failed to win multibillion dollar contracts in the east earlier this year.

But sources in Downing Street suggest that Whitehall’s support for the deal was about opportunity rather than necessity – BAE/EADS would be a world leader across the civil and military aviation spheres, a rival to Boeing. The government will now need to drive home the point that BAE is in good health, because the media’s attention is turning to possible job losses at the stand alone firm.

 

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