(By Balachander) BAE Systems Plc (LON:BA) and EADS on Wednesday have decided to end discussions regarding possible combination that would have created the world's leading aerospace, defense and security group.
Last month, the companies said they were in discussions about a possible merger that would created a company with combined revenue of over $90 billion and a market value of roughly $50 billion to strongly compete with U.S.-based defense and aerospace giant Boeing Co. (NYSE:BA).
"BAE Systems and EADS believe that the merger was based on sound industrial logic," the companies said on Wednesday. "The merger would have produced a combined business that would have been a technology leader and a greater force for competition and growth across both the commercial aerospace and defense sectors and which would have delivered tangible benefits to all stakeholders."
The companies, however, said talks with the relevant governments had not reached a point where both companies could fully disclose the benefits and detailed business case for this merger.
"France, Germany, and Spain (which has a smaller stake) hold a controlling influence of more than 50 per cent in EADS, while the UK government possesses a 'golden share' in BAE Systems, allowing it to veto any such merger if it chooses to do so," said Guy Anderson, a defense industry analyst at IHS Janes.
"As such the support of these governments is vital to the deal's prospects, yet to date the countries have appeared unable to form a common position on the merger," said Anderson. "None of the countries involved have yet voiced full support or opposition for the merger, but most have listed a range of concerns and guarantees that they would need to provide their support."
Notwithstanding a great deal of constructive and professional engagement with the respective governments over recent weeks, it has become clear that the interests of the parties' government stakeholders cannot be adequately reconciled with each other or with the objectives that BAE Systems and EADS established for the merger, the companies said.
BAE Systems and EADS, the parent of Airbus, have therefore decided it is in the best interests of their companies and shareholders to terminate the discussions and to continue to focus on delivering their respective strategies.
"We are obviously disappointed that we were unable to reach an acceptable agreement with our various government stakeholders," said Ian King, Chief Executive of BAE Systems.
"It is, of course, a pity we didn't succeed but I'm glad we tried," Tom Enders, Chief Executive of EADS said.