October 4, 2012 / 10:46 AM / 5 years ago

Focus on Germany as EADS, BAE inch closer to deal

* Germany silent on jobs guarantee, seeks state stake

* France, Britain said to be supportive of deal

* New hurdle over future status of core shareholders

By Gernot Heller and Emmanuel Jarry and Tim Hepher

BERLIN/PARIS, Oct 5 (Reuters) - EADS and BAE Systems have edged closer towards winning political backing for a $45 billion merger amid positive signals from Britain and France, but German misgivings over control remain a major hurdle, sources close to the talks said.

EADS Chief Executive Tom Enders bowed to pressure for guarantees on safeguarding jobs but the offer drew no immediate response as the German government considered if and how to proceed with the deal to create a European aerospace giant.

A number of potential stumbling blocks have emerged since the proposed tie-up between the Airbus manufacturer and the British defence group was announced last month. These include conflicting political interests in Britain, France and Germany, as well as some shareholders’ dissatisfaction with the terms.

Germany is holding out for the same role as France, which would hold 9 percent in the new group, and wants to host the headquarters. This has put it at odds with EADS, which wants minimum political interference.

Germany’s demand would entail Berlin buying a stake in EADS currently owned by carmaker Daimler. But Enders continued to rebuff the idea which also worries UK officials anxious to prevent damage to BAE’s vital U.S. defence markets.

“I see no advantage for our country in buying a stake,” Enders, a German, told Bild newspaper in an interview published on Thursday, adding that this would cost taxpayers billions without guaranteeing special rights.

“On export markets, especially in the United States and Asia, we would be at a competitive disadvantage if we were to give the impression of being a company directed by governments,” said Enders, who later defended the deal to 200 top managers.

Britain, France and Germany held “reasonably constructive” talks at official level, a person familiar with the matter said, but securing a deal in time for an Oct. 10 deadline looks increasingly likely to need a push from European leaders.

“Britain and France have moved further forward (towards accepting the deal); Germany’s position has not changed,” a person familiar with the negotiations said.

Talks between Germany and EADS itself are at a standstill while the three affected nations discuss a political response.

A French parliamentary source briefed on the negotiations said that France, Britain, EADS and BAE now agreed on the deal’s basics, but Germany still had to be convinced.

“The decision is now at the highest level. It may be settled between (French President Francois) Hollande and (German Chancellor Angela) Merkel,” the source said. “Hollande is ready to call Merkel if needed.”

The two leaders held inconclusive talks on Sept. 22. An extension to the Oct. 10 deal deadline has not been ruled out.

While Berlin has been widely portrayed as isolated, German sources insist it is France’s determination to keep a state shareholding and a major headquarters, undervaluing Germany’s role in EADS and European defence, that has led to the impasse.


“It is a complex and sensitive process and these are not issues that are easily sorted out with side deals in the corridors,” a source involved in the negotiations said.

Meanwhile a new piece of the jigsaw surfaced as negotiators sought ways of bullet-proofing the world’s largest defence merger, aiming to avoid a revival of state interference should governments buy shares in the future.

France has a 15 percent stake in EADS and under current arrangements could buy out industrial partner Lagardere, the French media firm which wants to sell its 7.5 percent stake.

Britain in particular wants France to forego that right in order to make the deal more presentable to U.S. authorities.

“Everyone is trying to inch forward to a position of comfort on this (point), but you can expect a few convulsions along the way,” said another person involved in negotiations. “You don’t want a situation where governments feel that if more shares become available, they can go ahead and buy them.”

The three nations are also negotiating National Security Agreements in addition to anti-takeover golden shares.

EADS is controlled by a pact between the French state and two core industrial shareholders, Lagardere and German carmaker Daimler, which collectively own 45 percent.

EADS wants to scrap the pact in order to rid the company of special interests and give it “normalised” corporate governance.

But the priority for Britain is to ensure that the deal is as watertight as possible against any objections from the United States, where it will be subject to a thorough review.

The concern is that the EADS old guard would still represent a bloc of over 30 percent if they resumed co-operation, though there is no current sign of this happening.

Two sources said a compromise could include formal commitments for the industrial partners to exit over time.

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