"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," BAE said in a statement. BAE is a private British company, and its biggest customer is the US military, accounting for nearly half its revenue. EADS, the Franco-German maker of Airbus planes, has a more complicated share structure, giving large influence to German and French industrial groups and the French state. The merger hinged on the role of both the French and German governments in the combined firm. In the end, it was Berlin, rather than Paris, that proved the problem.
When asked if he had encountered more problems with the German than the French government, BAE CEO Ian King said: "That would be an accurate representation." "We had clear red lines that we were not willing to go beyond relative to engagement and involvement of governments," King told reporters in London.
"If that was going to impinge on our ability to commercially run this new merged organisation, and support and develop our existing business, then we wouldn't go to that point, and that is where we are today." EADS said it was still not clear why Germany had objected. Securing such an enormous and complicated cross-border deal in a sector where commercial considerations are typically trumped by political, economic and national security concerns was always going to be desperately difficult.
"It is, of course, a pity we didn't succeed, but I'm glad we tried. I'm sure there will be other challenges we'll tackle together in the future," said Tom Enders, EADS chief executive. The companies had until 1600 GMT on Wednesday to declare their intentions and either scrap the merger, ask British regulators for more time or finalise their plans to create a group employing nearly a quarter of a million people that could better compete with US rival Boeing. A source close to the talks said the companies had accommodated all of Berlin's requests and were baffled as to why Chancellor Angela Merkel's government blocked the deal anyway.
"Germany blocked the deal, although all demands from the German side were met," the source said. "Top German negotiator Lars-Hendrik Roeller was the one who formulated all demands and said no in the end." Roeller is Merkel's senior economic adviser. Before the talks collapsed, several sources close to the deal said Merkel opposed the proposal but they did not know why. The German government did not immediately have any comment. Sources said Germany had wanted parity with France in the shareholding of the new group, plus the basing of some company headquarters in the German city of Munich.
"France and the UK agreed that Germany have the same stakeholding as France in the merged group. Separately, vast guarantees were given regarding safeguarding national security interests, sites, jobs. The topic of headquarters was being discussed very emotionally, but not an issue big enough to let the deal fail," a source close to the transaction said.