EADS chief faces German parliament over BAE merger plans

The chief executive of the defence and aerospace firm EADS will be called before Germany's parliament on Wednesday as concerns about its planned merger with BAE Systems continued to worry Europe.

Tom Enders, head of the Franco-German company, who is a former German paratrooper, will be asked to reassure politicians that the £29bn merger will not lead to job cuts, threaten national security, or shortchange German shareholders.

The political grilling comes after Germany's government called for the terms of the £29bn deal to be altered in EADS' favour, and listed a string of concerns.

Germany's economic ministry called the 60:40 split "incorrect" and requested it be changed to "closer to 70:30".

Investment bankers, who stand to collect almost £50m in fees if the deal goes ahead, are also said to be privately fighting over the terms. One EADS adviser told Reuters: "The ratio could be changed up to three percentage points in favour of EADS." Each firm denied there were any formal discussions to change the ratio.

The politically sensitive deal will be discussed by British, French and German defence ministers in Cyprus on Wednesday or Thursday. The UK government has begun an inquiry into the deal to examine the impact on British jobs and exports, and any potential threat to national security. Under British takeover rules the companies have until 10 October to submit merger proposals or request an extension. Defence analysts said they expected the firms to submit outline details before the deadline but warned that of political wrangling over terms and ringfencing of nationally sensitive projects to continue over months to come.

"This is very, very, early days. Politicians are broadly relaxed this is moving in the right direction, despite comments," said Howard Wheeldon, director of policy at the arms industry trade body ADS. "They will have to go to shareholders and governments and truly convince them of valuation and strategy.

"It comes down to how the national interests of each country are going to be protected and what each country is going to demand [in] the deal."

Germany, via Daimler, and France, via direct state holdings and the industrial group Lagardère, hold a 22.225% stake each in EADS. SEPI in Spain owns just over 5%. Those stakes would be reduced in line with the 60:40 split ratio giving the national governments much less power over the combined company.

Britain does not have an equity stake in BAE but holds a "golden share", meaning it can block deals on security grounds. BAE and EADS are suggesting that the French and German governments are also awarded "golden shares" in the combined company.

As well as securing the agreements of European leaders, BAE and EADS will also have to persuade American politicians to support the deal.

BAE holds a "special security arrangement" with the Pentagon that allows it to work on some of America's biggest, most sensitive, security projects, including the $1.5 trillion F-35 joint strike fighter programme.

BAE is only able to hold this special status because it has set up an American subsidiary run by security-cleared US citizens at arms' length from its UK headquarters.

EADS also has such an arrangement but it is not as extensive as that held by BAE and it does not allow the Franco-German company as much access.

The US air force secretary, Michael Donley, said the US defence department needed more details to be able to assess the security implications of the proposed tie-up.

There is a concern that BAE's SSA could be downgraded if the deal went ahead.

Sources close to BAE said the company would pull out of the deal if there was no way to maintain the high-grade SSA.


Source: http://www.guardian.co.uk/business/2012/sep/25/eads-chief-german-parliament-bae-merger