Political objections scupper European defense deal

A deal to create a European defense and aerospace giant to rival Boeing Co collapsed.

London: A deal to create a European defense and aerospace giant to rival Boeing Co collapsed Wednesday when Britain`s BAE Systems and EADS NV called off their merger discussions.

The companies said they had "decided to terminate their discussions" over the proposed $45 billion tie-up because of conflicting interests between the British, French and German governments.

"It has become clear that the interests of the parties` government stakeholders cannot be adequately reconciled with each other or with the objectives that BAE Systems and EADS established for the merger," the companies said in a statement.

The proposed merger between BAE and Franco-German EADS, the parent of Airbus, would have created a company, with a market value just shy of Boeing`s.

But from the start, investors were skeptical about the deal because of disagreements between the governments of the UK, France and Germany. All three had to approve the deal for it to go ahead.

"It`s not up to me to regret or rejoice," French President Francois Hollande said. "The French state as shareholder made known a certain number of arguments, of conditions. Our German friends had a certain number of criteria that were important to them. The British did the same. And the companies came to their conclusion."

The companies confirmed the end of their discussions just hours before a deadline on whether to go ahead with the merger, ask for more time or call it off.

The chief executives of both companies had emphasized that the merger was sought not out of necessity, but in the hope of leapfrogging Boeing to the number one spot.

A number of concerns were instantly raised, including the scale and location of any job cuts. Questions were also raised about what the deal would do to the delicate balance that Germany and France have achieved in EADS after years of bickering.

And the British government was worried about what the prospective deal would do to BAE`s big business dealings with the US as well as the scale of the involvement of other governments in the combined entity`s affairs. If the new entity was perceived as state-owned, it could affect its ability to vie for contracts in the US and Asia.