EADS chairman joins mounting criticism of potential BAE merger


The potential merger between British defence company BAE Systems and EADS has been hit by further criticism, this time from chairman Arnaud Lagardere.

Media tycoon Lagardere, whose company owns a 7.5% stake in EADS, is demanding better terms for controlling shareholders while urging management to complete 'the indispensable re-examination of the project to combine EADS and BAE, to better take into account the interest of all the French controlling shareholders of EADS'.

"EADS also has a significant cash balance of €11bn on its balance sheet, which will now be shared with BAE, which itself has in comparison £1bn of net debt. EADS shareholders are understandably angry."

EADS's chief executive is thought to have held talks with Lagardere in an attempt to ease tensions, but Lagardere's views are understood be echoed by German company Daimler, which owns a 22.5% stake in the EADS.

Lagardere's concerns follow widespread criticism of the potential merger, with some questioning the purpose of the deal. Writing for Reuters, Argonaut CIO Barry Norris raised doubts over the cost synergies of combining the two companies' defence assets, citing the deal to be 'without logic and without winners'.

"EADS also has a significant cash balance of €11bn on its balance sheet, which will now be shared with BAE, which itself has in comparison £1bn of net debt," he said. "EADS shareholders are understandably angry."

Any possible merger would also have to overcome a string of hurdles. Not only would the deal require approval of the UK, French and German governments, but the British Government is expected to block the deal should foreign powers take a stake above 9% in the new business. The US Department of Defense has also expressed an interest in examining the merger, given BAE's involvement in secretive US defence projects.

Unions in the UK have also made their objection to the merger known, citing its potential to cause huge job cuts at a time when unemployment rates are rising.

The creation of the world's largest aerospace company could bring a number of significant benefits to European industry, particularly in the face of increasing competition from growth markets. But the matter is far from resolved.