Could BAE-EADS megamerger be derailed by the “golden share” issue?


The proposed merger between BAE and EADS – which would create the world’s largest aerospace and defence company –  has triggered a wave of  speculation and debate since it was announced last week.

Some UK commentators have expressed concern over the possibility of one of our  biggest engineering firms passing into partial-foreign ownership (the combined company would be 60 per cent owned by EADS). Meanwhile, worries about potential impact on British jobs and fears over the future of yet-more UK manufacturing facilities are never far from the headlines.  

But many others have been more positive about the plan. With defence spending around the world declining, combining forces could represent the best way for both companies to weather the tough times ahead. The deal appears to make particularly good sense for BAE which is said to be keen to get back into the booming civil aerospace market.

Indeed, if it goes ahead the merger (or “joint-venture” as a BAE insider told us it’s being called internally) raises the prospect of some fascinating technology collaborations. For instance, as previously reported, BAE is keen to exploit the potential civil applications of its world-leading UAV expertise. Closer links with the civil aviation sector would almost certainly help out here.

Tantalising or not, the deal now faces a range of regulatory and political issues that some are claiming could in fact  prevent it from getting off the ground.

One of the biggest problems centres around reported plans to issue Britain, France and Germany with a so-called “Golden-Share” in the new company, a special stake would enable each state to block any future efforts to take-over the company.

The UK government already has a golden share in BAE that would enable it block any takeover effort .

However, under European legislation, governments are only allowed to hold golden shares in companies considered key to national security. Indeed, the UK government was stripped of its golden share in airports group BAA after the EU declared it illegal back in 2003. A merged BAE / EADS would be at least 50 per cent focused on civil aviation, and both companies will have to work hard to persuade Brussels that the golden-share rule should apply .

Meanwhile, concerns on the other side of the Atlantic  – where the potential creation of a company to rival America’s own defence and aerospace giants isn’t going down too well – are also thought to be threatening the deal.  The US is the biggest buyer of military equipment in the world and works closely with BAE on a number of projects  – including the F35 joint-strike-fighter programme. The US defence department apparently this week expressed concerns over the security implications of the merger and is said to carefully considering other implications of the plans.

While there is much about the proposed merger that seems to makes sense there are a huge number of hurdles to overcome if it’s to happen, and with these hurdles currently becoming more numerous by the day, confidence that the deal will go-ahead is beginning to appear fragile.