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EADS warns against big state role in BAE merger

Visitors look at an A350 aircraft miniature at the EADS booth during the ILA Berlin Air Show Sept. 13, 2012. Shares in EADS and Britains BAE Systems tumbled as investors feared a planned tie-up aimed at creating the world's biggest defence and aerospace group could run up against political and regulatory obstacles.


Governments should not try to wield influence over a merged EADS NV and BAE Systems, EADS boss Tom Enders said on Wednesday, highlighting the political tensions that could torpedo the planned $45-billion (U.S.) aerospace tie-up.

Mr. Enders, who also faces a battle to sell the deal to shareholders, told German lawmakers any state role had to be limited for the combined company – which would be the world's largest aerospace and defence group – to be competitive.

"There are many examples to prove that companies in this sector and of this size should not necessarily be subject to state involvement," Mr. Enders, a German, told reporters after briefing Parliament's economy committee.

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While pan-European group EADS and Britain's BAE are keen to limit state interference, which might deter investors or other governments from placing orders, politicians fear the combined group might be vulnerable to a takeover and jobs might be lost.

EADS has 50,000 employees at 29 sites in Germany and 133,000 worldwide.

Nicknamed "Major Tom" in Germany, Mr. Enders is a former paratrooper with an uncompromising reputation who has clashed with German and French governments before. He will need all of his political acumen to convince Germany and France that the deal's merits outweigh the drawbacks.

He told lawmakers he was ready to discuss with the German government any reservations it had over the planned deal, which would create a business with $93-billion of sales from Airbus jetliners to Typhoon warplanes and nuclear-powered submarines.

Deputy Economy Minister Hans-Joachim Otto, who attended the committee hearing, told reporters it was still an open question as to whether the deal would go ahead and said Germany had to protect national security and jobs.

"It is about 'if' as well as 'how'," said Mr. Otto, a member of the pro-business Free Democrats (FDP) who share power with Chancellor Angela Merkel's conservatives.

"It is a very complicated plan that throws up advantages and disadvantages, risks and chances."

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Under British stock market rules, EADS and BAE have until October 10 to say whether they will go ahead with further talks.

"We know that there is some time pressure but I want to say clearly that rigorousness comes before speed," said Mr. Otto.

He also appeared to take a swipe at France, saying that "too much state influence in EADS in past years has done more harm than good".

Under Mr. Enders, EADS is undergoing a transformation from a company straddling uneasy economic and political European relations and dominated by Airbus to a global group solid enough to compete for business from rising Asian powers.

In talks last weekend, Ms. Merkel and French President Francois Hollande discussed the planned tie-up. Mr. Hollande said he wanted assurances on jobs, industrial strategy and defence activities.

The French state directly owns 15 per cent of EADS with French media group Lagardere also owning a stake.

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Berlin holds no direct stake in EADS but had planned to buy part of Daimler's 15 per cent stake through state development bank KfW.

EADS and BAE have said they will offer the governments of France, Germany and Britain a "golden share" in the new company, which sources say is aimed at preventing a hostile takeover.

However, golden share arrangements in several companies have been legally challenged in the European Union.

Greens lawmaker Kerstin Andreae, a member of Germany's economy committee, said the golden share issue was unresolved.

"More questions were left open than answered. There are disagreements between the government and Tom Enders on the question of the valuation of the golden share which could not be cleared up," the lawmaker said after the briefing by Enders.

While Mr. Otto described a planned 60-40 valuation ratio for EADS and BAE respectively, as looking "disadvantageous" at a first glance, Enders said it was fair. A row over the ownership ratio erupted on Tuesday.

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