France and Germany must reduce stakes in BAE-EADS, says UK

Oct 8, 2012

Defence Secretary calls it a 'red line issue' amid fears of losing US defence contracts

THE beleaguered EADS-BAE deal is still deadlocked over critical issues including state ownership stakes and the location of the combined company's headquarters. On Friday, a meeting of officials from Britain, France and Germany failed to resolve stumbling blocks.

Britain says it wants neither European partner owning more than nine per cent of the firm but France has rejected that limit and wants the option of controlling, in combination with Germany, as much as 27 per cent of the new company, says the Wall Street Journal.

Defence Secretary Philip Hammond says this is a "red line" issue for Britain. France and Germany must abandoned their ability to control the merged company or Britain would use its golden share in BAE to veto a deal.

"It is not, I think, necessary to have no French or German interest in the company," he told the BBC on Sunday. "[But] it is necessary to reduce that stake below the level at which it can control or direct the way the company acts." A government aide added that Hammond was not just referring to the dilution of the French and German stakes that would happen as a consequence of a deal. "They must reduce their interests in the firm ­ the dilution does not tackle it," he said.

While the UK has no stakeholding in either company, it is concerned BAE could get shut out of US defence contracts if France and Germany have too much control. BAE and EADS's major competitor, Boeing, is currently campaigning to have BAE stripped of its privileged status.

The Daily Telegraph says David Cameron is ready to step in to try to prevent the collapse of the deal following further new German demands on Friday that the merged company be based in Munich, not Farnborough and Toulouse as it has been.

Cameron is ready to hold talks with French President Francois Hollande and German Chancellor Angela Merkel. If the deal isn't concluded by Wednesday, BAE will have to request an extension from the Takeover Panel. But BAE shareholder are complaining they are being kept in the dark about the merger and have expressed concern that BAE is negotiating from a position of weakness.

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