Failed EADS-BAE Merger: A Dream Lost in Political Translation

The merger was meant to be unprecedented. But the attempts to bring together Dutch aerospace conglomerate EADS NV (IW 1000/59) and Britain's BAE Systems PLC (IW 1000/158) to create the biggest aerospace and defense group in the world got mired in the quicksand of politics and eventually failed.

For those from the British arms maker and the parent company of Airbus, who for months worked on the mega-merger, the dream stopped short Wednesday when both groups scuttled further talks over irreconcilable differences between the leaders of Britain, France and Germany.

London holds a golden share in BAE Systems and wants to maintain the defense company's special relationship with the U.S. Pentagon by limiting government funds in the new giant's capital.

Paris, on the other hand, holds 15% of EADS shares, which would have shrunk to 9% in the merger.

And Germany already had plans to buy 7.5% of the stocks held by carmaker Daimler AG (IW 1000/18) and insisted on a parity of power with France.

A compromise solution between France and Britain had been found, but in the end Berlin feared that German plants that contribute to the Eurofighter aircraft would have been sidelined by BAE Systems.

EADS executives point out that Germany never explained why it dropped the blockbuster merger.

During talks, they said, Germany called for the new company to be headquartered in Germany when EADS CEO Tom Enders already had decided on Toulouse in southern France.

"I'm ready to admit that we never expected to face such opposition against the deal, in particular not in Berlin," Enders said in a letter to employees.