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Berlin (AFP) Oct 10, 2012
Germany feared being left on the sidelines of any tie-up between European aerospace giant EADS and British arms maker BAE Systems, analysts say, after Berlin was blamed for blocking the deal.
Talks on the potential $45-billion (35-billion-euro) mega-merger, ditched on Wednesday, were blocked by Germany, a source close to the matter told AFP.
In a terse statement, Chancellor Angela Merkel's spokesman said that Berlin had "taken note" of the decision.
"For the German government, the priority now is that EADS continues to develop positively in all its business activities," Steffen Seibert said.
Peter Hintze, Berlin's coordinator on the deal and a senior economic ministry official, told Der Spiegel newsweekly: "I am convinced that EADS can best show its strengths on the global market independently."
While in public, officials stressed that Paris, Berlin and London were striving for a common line, negotiations behind the scenes appeared to have become much more strained.
The often turbulent relations within EADS between France and Germany were complicated this time by the involvement of Britain, with all three European powers holding a veto right over the planned merger.
"The Germans are worried that there will be a duopoly with Toulouse (Airbus headquarters in southern France) in charge of civil matters and London for defence," said Henrik Uterwedde, deputy director of the German-French Institute in Ludwigsburg, before the talks collapsed.
"They want a fair share of the pie," he told AFP.
Since the potential merger was announced last month, Berlin repeated almost daily the official line: they are in talks with all players and the deal is so complex that no public statements would be made before a final decision.
Just minutes before news of the breakdown in talks, Seibert was refusing comment at a regular news briefing.
But German Economy Minister Philipp Roesler had also insisted that "Germany has to preserve its interests" while recognising that this merger was an "undoubted opportunity."
With possibly less than a year to go until national elections, Berlin was sensitive to the need to protect its factories and tens of thousands of EADS-linked jobs in Germany.
There are sizeable Airbus assembly plants in Bremen, in the north of the country, as well as factories building the Eurofighter combat plane in the southern state of Bavaria.
Berlin was also at pains to defend its research and development capabilities and feared being relegated to a mere cog in a wider machine whose main wheels were turning in Paris and London, analysts said.
European Aeronautic Defence and Space company chief Tom Enders, a German, already ruffled feathers in Berlin government circles by shifting the group's headquarters to Toulouse, when it was previously split between Germany and France.
Berlin wanted to revisit this decision, a demand considered "unreasonable" by EADS since "the choice of headquarters is an economic decision."
Enders sought to calm tempers by pledging, in the country's most widely-read daily, Bild, that he would consider job guarantees if the merger went ahead.
"I am so convinced of the merits of our project that I am prepared to talk about attractive job and headquarters guarantees that I could not consider for EADS (on its own)," Enders said.
Others on the German political scene were concerned that Berlin would lose control of its say in the defence operations of the group.
"My fear is that the defence activities of the firm will be divided between France and Britain," said Martin Lindner, parliamentary vice-president of the Free Democrats, junior coalition partners in the German government.
"I do not want us to be completely dependent on outsiders for such a key industry," he told the Frankfurter Allgemeine Zeitung daily.
Analyst Uterwedde said that the deal was always about politics rather than economic or commercial considerations.
"EADS is and remains a political company," he said.
Writing before the final collapse of the deal, Spiegel, however, pointed to the human side of the failed merger.
"What happened between the three European countries last week is nothing short of a political-economic earthquake -- a seismic tremor that potentially puts thousands of jobs at risk," said the magazine.
Investors seemed not to share the concerns, however, pushing EADS shares more than four percent higher in Wednesday trading.
EADS, BAE Systems: how they measure up
They insisted after their proposed merger collapsed, that the marriage was conceived with industrial logic and destined to give birth to a formidable civil and military group.
The two firms now face a different future in the global aerospace industry where the main competitors today are in the United States and tomorrow possibly also in emerging countries such as China and Brazil.
EADS, based in Germany and France, does most of its business in the civil aviation sector which is expected to generate huge demand for airliners for decades.
BAE Systems of Britain specialises in defence equipment, a sector as vital to national security as it is clouded by pressures on national budgets.
Both companies are important as hubs of technological and industrial excellence, and employment, in economies suffering from a perception of industrial decline. And both are important to their national economies as big exporters.
EADS was worth 23.15 billion euros ($29.80 billion) before the announcement on September 12 that EADS and BAE Systems wanted to tie up.
BAE Systems was worth 11.81 billion pounds (14.7 billion euros, $18.92 billion). This gave a joint capitalisation of 37.85 billion euros at that time.
The two companies said that a merged entity would have been worth about $45 billion (35 billion euros).
Under the now-abandoned proposal, EADS and its shareholders would have accounted for 60 percent of the merged entity and BAE Systems shareholders 40 percent.
Analysts said that the deal fell through because Germany feared being sidelined, with civilian activities of the merged group being run from France and the military business from Britain.
A central feature of the structure of the European Aeronautic Defence and Space Company (EADS) is that Germany and France have equal voting rights, each accounting for 22.35 percent of the total.
The French state owns about 15.0 percent and Lagardere about 7.5 percent, but Lagardere provides all the French directors for voting on behalf of this French holding.
The German industrial group Daimler owns 14.85 percent, having transferred an interest of 7.5 percent to a group of core investors including the KfW state bank, making a total of 22.35 percent, but Daimler votes on the board for the whole of this holding.
Spain owns 5.45 percent of EADS. The rest of the company is in private hands via the stock market.
EADS had emerged from a restructuring and merger of French, German and Spanish aerospace firms in 2000.
The deeper origins of its main business Airbus lay in a complex government structure which took account of French and German national interests.
Six years ago EADS ran into serious financial problems arising from delays to its programme for building the A380 superjumbo jet.
These delays revealed deep flaws in management and industrial procedures and the group launched a vast programme to cut costs, to restructure and to diversify its cost base away from dependence on the euro since most aerospace sales are made in dollars.
Airbus builds airliners and military transport aircraft. Its parent group EADS also builds satellites and rockets via Astrium, and helicopters via Eurocopter. EADS also has a defence arm called Cassidian.
EADS main competitor is Boeing of the United States.
EADS recently took a big step on Boeing's home ground, saying it would open an assembly plant costing $600 million in Alabama which will produce the first US-built Airbus aircraft by 2016.
The initiative came after Airbus lost a big US Air Force contract for military refuelling tanker aircraft. The contract was awarded to Boeing after a politically charged contest.
The EADS group employs about 133,000 people at more than 170 sites worldwide, and for 2011 reported sales of 49.1 billion euros and a net profit of 1.033 billion euros.
EADS shares were at 29.65 euros immediately before the announcement of talks, and closed on Tuesday at 26.10, a fall of 11.97 percent.
BAE Systems, based in London, is an independent quoted company. The biggest single shareholder is the Invesco Perpetual fund with 13.3 percent.
The British government has a golden share which can prevent any foreigner from holding more than 15 percent of the voting rights.
BAE Systems achieves about 45 percent of its sales in the US market. The group is involved in building missile systems, tanks, torpedoes, submarines and fighter aircraft, and provides equipment for security.
Until 2006, BAE Systems owned 20 percent of Airbus but withdrew to focus on the US market and against a background of long-standing unease at the structure for governance and political influence.
BAE Systems was born in 1999 when British Aerospace bought the British General Electric company.
Its main competitors are the US firms Lockheed Martin, Northrop Grumman and Raytheon.
In the United States, the group is a key supplier for the F-35 Joint Strike Fighter and is also responsible for the Trident nuclear submarine programme.
BAE Systems 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. Net profit was 1.24 billion pounds.
Immediately before the deal was announced, shares in BAE Systems were being traded at 328.70 pence. At the close of business on Tuesday they stood at 325.40 pence, a decline of 1.0 percent.
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