Germany scuppers EADS-BAE merger

Germany feared being left on the sidelines of any tie-up between European aerospace giant EADS and British arms maker BAE Systems, analysts say, after Berlin was blamed for blocking the deal.

Germany scuppers EADS-BAE merger
Photo: Ronnie Macdonald

Talks on the potential €35 billion ($45 billion) mega-merger, which BAE Systems abandoned on Wednesday, were blocked by Germany, a source close to the matter told AFP.

In public, officials stressed that Paris, Berlin and London were striving for a common line, but behind the scenes, negotiations appeared to have become much more strained.

The often turbulent relations within EADS between France and Germany were complicated this time by the involvement of Britain, with all three European powers holding a veto right over the planned merger.

"The Germans are worried that there will be a duopoly with Toulouse (Airbus headquarters in southern France) in charge of civil matters and London for defence," said Henrik Uterwedde, deputy director of the German-French Institute in Ludwigsburg, before the talks collapsed.

"They want a fair share of the pie," he told AFP.   

Since the potential merger was announced last month, Berlin has repeated almost daily the official line: they are in talks with all players and the deal is so complex that no public statements would be made before a final decision.

But German Economy Minister Philipp Roesler also insisted that "Germany has to preserve its interests" while recognising that this merger was an "undoubted opportunity."

With possibly less than a year to go until national elections, Berlin was sensitive to the need to protect its factories and tens of thousands of EADS-linked jobs in Germany.

There are sizeable Airbus assembly plants in Bremen, in the north of the country, as well as factories building the Eurofighter combat plane in the southern state of Bavaria.

Berlin was also at pains to defend its research and development capabilities and feared being relegated to a mere cog in a wider machine whose main wheels were turning in Paris and London, analysts said.

The head of the European Aeronautic Defence and Space company Tom Enders, a German, already ruffled feathers in Berlin government circles by shifting the group's headquarters to Toulouse, when it was previously split between Germany and France.

Berlin wanted to revisit this decision, a demand considered "unreasonable" by EADS since "the choice of headquarters is an economic decision."

Enders sought to calm tempers by pledging, in the country's most widely-read daily, Bild, that he would consider job guarantees if the merger went ahead.

"I am so convinced of the merits of our project that I am prepared to talk about attractive job and headquarters guarantees that I could not consider for EADS (on its own)," Enders said.

Others on the German political scene were concerned that Berlin would lose control of its say in the defence operations of the group.

"My fear is that the defence activities of the firm will be divided between France and Britain," said Martin Lindner, parliamentary vice-president of the Free Democrats, junior coalition partners in the German government.

"I do not want us to be completely dependent on outsiders for such a key industry," he told the Frankfurter Allgemeine Zeitung daily.

Analyst Uterwedde said that the deal was always about politics rather than economic or commercial considerations.

"EADS is and remains a political company," he said.    

Writing before the final collapse of the deal, newsweekly Spiegel, however, pointed to the human side of the failed merger.

"What happened between the three European countries last week is nothing short of a political-economic earthquake — a seismic tremor that potentially puts thousands of jobs at risk," said the magazine.

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Renault shares plunge as Fiat merger talks fail

Renault shares plunged on Thursday after Italian-American carmaker Fiat Chrysler said it had withdrawn a proposal for a merger, saying it would be unable to reach an agreement with the French government.

Renault shares plunge as Fiat merger talks fail
A merger between Fiat Chrysler and Renault would have created the world's biggest carmaker. Photo: Marco Bertorello/AFP

Fiat Chrysler (FCA) “remains firmly convinced” of the interest of its offer but “political conditions do not currently exist in France to carry out such an arrangement”, it said in a statement.

French automaker Renault announced earlier that its board of directors had not reached a decision following a crunch meeting held at the request of the French state, the biggest shareholder in Renault with a 15 percent stake.

Fiat Chrysler proposed a “merger of equals” with Renault last week which was welcomed by financial markets and had been given a conditional green light by the French government, although it warned against “any haste” regarding the proposed 50/50 merger.

READ ALSO: Fiat Chrysler proposes merger with Renault

Photo: Loic Venance, Marco Bertorllo/AFP

French Finance Minister Bruno Le Maire had said a merger, which would have brought together the flagship brands as well as Alfa Romeo, Jeep, Maserati, Dacia and Lada, would be “a real opportunity for the French auto industry”. However, he had set various conditions, including that no plants be closed as part of the tie-up and that the Renault-Nissan alliance continues. 

A source close to Renault said Le Maire had asked for a board meeting next Tuesday after he returns from a trip to Japan where he will discuss the proposal with his Japanese counterpart.

At Wednesday evening's board of directors vote at Renault's headquarters near Paris, all the directors were for the merger, apart from a representative of employees affiliated with the powerful CGT union and two representatives of Nissan — a long-time Renault partner — who abstained, the source added.

The two directors appointed by Nissan, however, asked “to write in the minutes that they would say yes with a little more time”.

Fiat Chrysler said: “FCA remains firmly convinced of the compelling, transformational rationale of a proposal that has been widely appreciated since it was submitted, the structure and terms of which were carefully balanced to deliver substantial benefits to all parties.

“However, it has become clear that the political conditions in France do not currently exist for such a combination to proceed successfully.”

Renault holds a 43-percent stake in Nissan, whose stocks tumbled 2.64 percent to 742.7 yen on Thursday after the withdrawal was announced. Relations in the partnership have been under strain since the arrest last November of former boss Carlos Ghosn, who is awaiting trial in Japan over charges of under-reporting his salary for years while at Nissan and using company funds for personal expenses.

The merger would have created a group worth more than €30 billion, producing 8.7 million vehicles per year. The combined mega-group — including Nissan and Mitsubishi — would be by far the world's biggest, selling some 15 million vehicles, surpassing Volkswagen and Toyota, which sell around 10.6 million each.

Foreign takeovers of major French firms are highly controversial and successive governments have sought to defend domestic industrial groups which are seen as important for their technology or jobs.