Political interference the biggest risk to BAE merger with EADS


Former UK defence secretary Liam Fox has highlighted 'undue political interference' as the greatest risk to any merger between BAE Systems and EADS.

Fox warned that intervention from governments in France and Germany was likely to be the biggest factor in scuppering the deal. Support for it would be required from three separate European governments and the US Department of Defence, which presents a number of significant hurdles.

"For the UK to retain a national defence industry, BAE must diversify and expand into new markets."

BAE has been seeking approval for its planned merger with EADS, citing its potential to form a 'world class' firm, capable of approximately £60bn of sales. Former UK defence secretary Liam Fox backed the deal, writing in the Sunday Telegraph he said: "For the UK to retain a national defence industry, BAE must diversify and expand into new markets."

Both France and Germany have since pledged to consult on plans regarding the merger, with German Chancellor Angela Merkel meeting with French President François Hollande and stating: "We agreed that we will investigate the necessary issues intensively with the necessary care, and in agreement with the companies involved."

However, Dr Fox remained sceptical, insisting no need for interference from foreign governments. "Without clear mechanisms to preclude foreign interference, the British Government should not support the proposals," he said.

Fox went on to state his 'instinctive preference' for any such partner for BAE to originate from the US, building on BAE's decision to ringfence its US defence arm to maintain secrecy regarding defence contracts. No French or German executives will serve on the US board, with just one British director being elected to that position in BAE chief executive Ian King.

With a multitude of issues needing to be resolved and clarified before any terms can be finalised, it is highly likely that an extension will be granted to the 10 October deadline, providing both BAE and EADS more time to devise a proposal. While an agreement would be a step forward, it is becoming increasingly clear that any such proposal is likely to be far from the finished version, with foreign governments already insisting on investigating the necessary issues.