BAE board under fire as deal fails

BAE was last night scrambling to save the reputation of its board following the embarrassing collapse of the high-profile tie-up with EADS yesterday.

The £30bn mega-merger between the two defence and aerospace companies skidded to a halt yesterday afternoon as talks between the governments broke down in mutual recrimination.

A source with knowledge of the situation told City A.M. that the German government blocked the deal because it was “fundamentally opposed” to the tie-up. German officials denied sole responsibility, citing French qualms. The failed bid also left Downing Street under fire as senior Tories criticised its early support for the merger.

Lord Clive Hollick, a former director of BAE Systems, yesterday called for a board shake-up, saying that the British defence firm was now in a “strategic cul-de-sac without credible leadership”.

“In such a public collapse, the position of Ian King as chief executive of BAE is now particularly vulnerable unless he can convince shareholders that despite this significant setback, BAE’s strategy is on the right path,” added Joshua Raymond, chief market strategist at City Index.

Chairman Dick Olver is also thought to be vulnerable to shareholder ire.

A source close to the deal yesterday said that the BAE board will go back to shareholders to explain to them “what plan B might be”.

“Ian King’s position is not untenable, although shareholders could be less happy with the board,” they said. “It’s a question as to who is personally responsible, and how the company now gets back on the same page as the shareholders.”

Neil Woodford at Invesco, which holds 13.3 per cent of BAE, spoke out earlier this week to criticise the strategic rationale of the merger. It is thought up to 30 per cent of BAE shareholders were against the deal.

There is scope for the two companies to try and tie up again, with EADS chief Tom Enders saying there will be “challenges to tackle together in the future” between the two defence and aerospace firms.

“BAE and EADS will continue to work closely together as a result of the process, and many people still think the merger is a fantastic opportunity,” said one source, stressing it would not happen immediately.

Advisory firm Freeman & Company estimated that the banks on the deal stood to earn between $120m and $150m (£75m and £94m) if the merger went through. It is thought BAE and EADS will now pay several millions each in City retainer fees.

BAE yesterday closed 1.98 per cent down. EADS closed 5.29 per cent up.