EADS and BAE abandon merger deal after governments disagree

After a month of negotiations, EADS and BAE said they were abandoning merger talks.

Discussions between the two defense and aerospace companies broke down after governments failed to agree on the sensitive deal.

The merger needed the approval of the French and German governments — stakeholders in EADS — and the government of the UK, a stakeholder in BAE.

"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," the companies wrote in a joint statement.

"BAE Systems and EADS have therefore decided it is in the best interests of their companies and shareholders to terminate the discussions and to continue to focus on delivering their respective strategies."

GlobalPost's Siobhan Dowling last week anticipated the merger's breakdown, writing Oct. 2 that the various interests of the countries and companies involved "may yet scupper the $45 billion deal."

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The UK government, said the BBC, wanted to limit the roles of both Germany and France in the company in order to maintain BAE's relationship with the Pentagon. Dowling previously reported for GlobalPost that Berlin had been concerned about being left out of the new company’s management structure.

Governments also worried about which country would have the largest stakes in the new industrial behemoth that would have become the largest defense contractor in the world.

"We are obviously disappointed that we were unable to reach an acceptable agreement with our various government stakeholders," said BAE chief executive Ian King.

The Guardian said that sources close to the deal claimed that Germany was the primary obstacle.

German Chancellor Angela Merkel, according to the sources, was not comfortable with merging a defense company with an aerospace manufacturer.

GlobalPost wrote Tuesday that shareholders were also worried about the 35 billion euro deal, particularly for BAE.

BAE's largest shareholder, Invesco Ltd., had drawn up a list Monday of eight financial and strategic drawbacks of the merger.

Yet, as it turned out, it was governments rather than private shareholders that foiled the deal.

The BBC reported that the negotiations could still pick back up in the future.

BAE, which needed the deal more than EADS, saw its shares drop two percent over the news, while shares in EADS jumped three percent, said the BBC.

European Aeronautic, Defence & Space Co. was formed in 2000 through the merger of Aerospatiale Matra of France, DaimlerChrysler Aerospace in Germany and Construcciones Aeronauticas in Spain.

BAE Systems Plc. was created in 1999 through a merger between British Aerospace and Marconi Electronic Systems and is now the third largest defense contractor in the world.