Mega Defense Merger EADS-BAE Plans Put Merkel Under Pressure

AFP/ Airbus

Part 2: Opportunities and Risks

EADS CEO Enders' goal is to overtake archrival Boeing, an objective he has already achieved in the civil aviation business with Airbus. Now he also hopes to secure global dominance in the defense market, which, in his eyes, is only feasible if he can reduce the power the political world wields at his company. "We don't need more government shareholders, and we don't need more government influence; in fact, we need less," he said, his comments aimed squarely at Berlin.

In May 2012, a few weeks before moving from Airbus to his current job at EADS, Enders held initial talks with BAE CEO Ian King, who is already wrestling with his own problems. In recent years, he has developed a relatively one-sided emphasis on BAE's defense business, as well as on a small number of markets, like the United States. But even Washington has recently seen sharp cuts in its defense budget. The British could certainly use a second mainstay, such as a share in booming Airbus.

Enders took the next step in early June, when he contacted selected politicians, first in Britain, then in France and, finally, in Germany. According to a participant in the negotiations, he told the chancellor about his plans in July. If it hadn't been for his hang-gliding accident, Enders would have launched a new round of talks in September.

Worried about Losing Power

Chancellery officials are aware of both the opportunities and risks associated with the merger. For instance, they say, the European Union permits golden shares for the defense sector when it comes to protecting national security interests. "For the civilian part of the company, this is in violation of EU law," says a source familiar with the negotiations.

The Chancellery is especially worried about its possible loss of power over the strategically important defense industry, especially in light of the billions in subsidies the government has spent on the sector. What happens if the new company's headquarters are permanently moved to Toulouse and London?

The task force is already mapping out scenarios that would involve the closing or merging of plants, which are likely to alarm the Bavarian state government, in particular. As Enders noted in the spring, Bavarian plants in Manching, Donauwörth and Schrobenhausen are already suffering from a lack of orders. The Bavarians fear that high-tech jobs could slowly migrate to France and Great Britain.

To prevent this from happening, the Chancellery is negotiating with the French especially, in the hope of achieving reliable guarantees that German plants will not be closed. Without these guarantees, say Chancellery officials, Berlin will not agree to the deal. Merkel has reportedly already discussed the issue with her French counterpart, President François Hollande. But the French have "practically disappeared" at the moment, says one insider.

Lack of Patriotism

EADS is almost desperate in its attempts to win the support of politicians. Company officials say that they would like to talk about the German plants, and that they are also open to discussing investment and development. They are still cautiously optimistic that the Germans will ultimately approve the deal, calling it "ambitious" but not impossible.

But Merkel knows that there is one thing she cannot expect from executives like Enders: patriotic sentiments. Enders thinks in global terms, not in terms of Bavarian jobs.

Defense Ministry officials also don't trust Enders. "The thought of being totally dependent on one vendor makes my hair stand on end," says a Defense Ministry weapons expert, who already sees military core capabilities disappearing across the English Channel. The fear is that Germany could be downgraded to nothing more than a supplier.

"We set conditions, but the details are what is important," say officials at the Defense Ministry. But EADS head Enders hasn't been forthcoming on those details yet. In a letter sent to the government last week, he apologized and explained that this is the kind of deal for which details cannot be stated in writing in advance.

Nothing But a Trap

The government views Enders' maneuvers with suspicion. His offer of a golden share, say officials, is nothing but a "glue trap," because the influence Enders is promising the government appears to be extremely limited.

But Enders doesn't have much leeway to offer further concessions to the government. He faces a dilemma. If he allows Paris and Berlin to retain too much influence over the mega-company, BAE's powerful shareholders won't agree to the merger.

If that happens, the chancellor will be relieved -- because then she will no longer have to make a decision.


Translated from the German by Christopher Sultan


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titus_norberto 09/19/2012
1. Mergers fell more often than marriages
Ted Turner once said after Time Warner merged with AOL: "I'd rather go back and be with one of my ex-wives than go through this again". Turner thought that he was buying AOL but in fact he was bought by them. This deal looks as dodgy as Ted's one. Take for instance BAE, according to the article is the best supplier of Boeing BUT wants to merge with EADS in order to COMPETE with Boeing. Well, I scratch my head thinking about that..., it could well be the other way around, namely BAE and Boeing taking over (eliminating) a competitor, EADS… With Perfidy Albion you can never be sure… and the Americans are naïve but desperate… All these sounds as very dodgy business to me, to say the least.
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