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; and most commentators welcome the failure. Douglas Carswell 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’.

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

This prompts the question: why was cautious Whitehall so hot for such an unlikely deal? Of all the answers that one might be given, none is as compelling as the observation that Whitehall is not being particularly cautious at present. 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 multibillionaire dollar contracts in the East earlier this year, although less worthy reasons for Whitehall’s enthusiasm are being suggested in some quarters.

There are no prizes for effort in diplomacy. BAE has become more vulnerable to a takeover as a result of this high-risk strategy’s failure, raising fears for the future of defence technology expertise in Britain. It is neither surprising nor wrong for government to intercede on behalf of companies; but to have backed, and apparently facilitated, such an obvious loser is a serious misjudgement. Hopefully no jobs will be lost; but if they are, then the government is likely to cop more flak than usual and deservedly so.

Tags: Angela Merkel, Business, Civil Service, Defence, Diplomacy, Whitehall