EADS and BAE management declared war on their shareholders with their proposed merger. With only a few shareholders having fired warning shots, Enders and King today surrendered in no man’s land having had no battle-plan to negotiate the minefield of national security interests that lay between them and their quarry.
Today’s decision to terminate merger talks between EADS and BAE is a triumph for common sense and shareholder value. Having sunk almost €30bn into new Airbus plane projects that are only now beginning to break even* it made no sense for EADS to now share this with BAE shareholders. There was also little logic in combining the defence assets of both companies without significant cost and revenue synergies. Neither set of shareholders were convinced by the logic behind the deal.
Although EADS management are to be commended for their streamlining of Airbus manufacturing, this deal with its political complexity and dubious industrial and financial logic was an unwelcome distraction for them and their shareholders. Continuing merger negotiations would have resulted in a long battle with shareholders and sustained tension over weak corporate governance. That the problems in executing the deal proved too complex should be a source of celebration rather than regret.
Barry Norris
Founding Partner & Fund Manager
10th October 2012
*Source: Factset/Argonaut Capital Partners, October 2012