Last-ditch meetings were taking place yesterday to thrash out the finals hurdles to the merger. European defence ministers, including defence secretary Philip Hammond, met in Brussels yesterday at a Nato summit where the deal was on the agenda. The boards of BAE and EADS met separately last night, while BAE chief Ian King spoke with EADS boss Tom Enders ahead of the looming deadline of 5pm today, set by the UK Takeover Panel.
EADS was forced to deny German reports that the deal had collapsed yesterday afternoon and said that “progress” had been made between the UK and French governments.
It is understood that negotiators for the two countries reached a breakthrough over state shareholdings, including capping future stakes in the merged firm.
However, Germany is thought to remain opposed to these proposals. A source close to the transaction said that Berlin is unhappy on several issues – including concerning government stakes in the enlarged firm and where it is headquartered – and could try to block the deal unless these are ironed out.
The merger, which would create the world’s largest defence and aerospace company, hinges on whether the governments are prepared to limit their holdings in the new defence group. France has been reluctant to agree to a cap on its stake in EADS, which could be as high as 13.5 per cent in the enlarged firm. Germany, while it does not want to hold a government stake, wants parity with France, whereas Britain is opposed to the two countries owning a combined 27 per cent.
EADS’s Enders has previously said he wants little state involvement in the new firm to ensure competitiveness.
Multiple sources close to the transaction said it was more than likely that today’s 5pm deadline would be extended due to the political hurdles that still need to be overcome.
Tory MP Bernard Jenkin, head of the Public Administration Select Committee, yesterday told City A.M. at the Conservative party conference in Birmingham: “The longer this drags out, the less likely the deal becomes. The more we think about this, the more apparent are the problems and risks to the UK-US relationship if EADS takes over BAE.”
Shareholder resistance to the terms of the merger could also topple the deal. BAE’s largest shareholder Invesco, which holds 13.3 per cent of the British firm, said on Monday that it opposed the tie-up.