BAE merger with European rival EADS hits setback

UK Political Correspondent

Tuesday 9 October 2012

Plans to create the world's largest defence contractor by merging BAE Systems and its European rival EADS could suffer a major setback tomorrow, it has been claimed.

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Kate Devlin UK Political Correspondent

Defence Secretary Phillip Hammond suggested there was no chance the controversial £30 billion deal, which could result in job losses among Scotland's 5000-strong BAE workforce, would be done in time for tomorrow's key deadline.

He said the two companies could decide not to apply for an extension that would give them more time to reach agreement in a widely predicted move.

David Cameron is also under pressure from his own MPs to force the French and Germans to cut their potential stake in any new firm. Mr Hammond has said the issue is a "red line" for the Tory-LibDem Coalition Government. At the weekend dozens of Tory MPs wrote to the Prime Minister calling on him to veto any deal unless the French and Germans gave up control. BAE employs 40,000 staff in the UK. The UK Government has a "golden share" in BAE, which effectively gives it the power to block any deal. Asked about the chances of a deal in time for the deadline, Mr Hammond said: "The decision that has to be taken by Wednesday by the company is whether they feel that they are close enough to getting agreement."Whether they are close enough to make it worth asking the stock exchange to extend the deadline. "I don't, frankly, think there is any chance of getting the deal done by Wednesday. "But the company will make the call whether it wants to apply for an extension of time". He said that he thought a deal could be done if the French Government was prepared to reduce its stake and offer other safeguards. He added: "So long as that stake does not give them effective control or any ability to interfere in the management of the country. "What we can't have is this business going forward with the French of German stake able to control its activity."His comments came just hours after BAE's largest shareholder outlined its "significant reservations" over the proposals. Invesco Perpetual, which owns more than 13% of BAE, said that it did not understand the strategic logic of merger. There have also been reports that the German Government could decide to block the move amid demands it has a stake in any newly created company equal to that of France.The merged group would have more than 220,000 staff worldwide, including 52,000 in the UK.

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BAE merger with European rival EADS hits setback

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