Weak investor support clouds BAE/EADS deal

DOUBTS are growing over whether the multi-billion pound merger of defence giants BAE Systems and EADS can go ahead, with shareholders split over the benefits that the tie-up would bring.

Anthony Nutt, head of UK equities at Jupiter, which holds around 1.2 per cent of BAE Systems stock, told City A.M. yesterday that the merger was a “strategic necessity” for the UK firm.

“The company has suffered a low rating relative to global defence stocks and it has sensibly decided to diversify away from the defence sector rather than face the chill winds of defence cuts in the US,” he said. “The merger will face significant scrutiny from government and regulators but it makes a great deal of sense.”

And source close to the deal suggested that the talks, understood to have been in an advanced stage before the deal was leaked last Wednesday, would not be progressing if shareholder sentiment was negative.

But David Cumming, head of equities at Standard Life Investments (SLI), which owns 0.84 per cent of BAE, said the merger was a “difficult deal politically”, and SLI would wait for more details before deciding.

The plan to issue golden shares in the merged company to the French, UK and German governments could come under close scrutiny from the EC, as regulators have been reluctant to issue them. Talks with the governments and shareholders are ongoing.