The proposed merger of Europe’s biggest defense and aerospace contractors collapsed Wednesday after European political leaders failed to agree on terms.
The combination of London-based BAE Systems and Paris-based European Aeronautic Defence and Space would have created a colossus to rival U.S. giants Lockheed Martin and Boeing, as well as concerns at the Pentagon about such a huge foreign-owned contractor.
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Experts said the failure of the deal could leave the U.S. arm of BAE Systems — which is based in Rosslyn and employs 6,000 in the Washington area — better positioned to participate in a wave of smaller consolidations sweeping the defense industry, as companies jockey for position in a time of budget cuts and shifting Pentagon priorities.
“For the big U.S. defense contractors looking at where growth will come from during the next couple decades, BAE’s U.S. operations would seem to be in a sweet spot,” said August Cole, an adjunct fellow at the American Security Project. He speculated that BAE could be an attractive takeover target, but the company dismissed that notion.
“We are not seeking any activity in that regard. . . . I can assure you I don’t view it that way,” Linda Hudson, president and chief executive of BAE’s U.S. unit, said in an interview. Hudson added that the end of the merger discussions will not have an impact on the company’s operations.
The deal would have created a defense and aerospace giant with more than $90 billion in revenue and operations throughout the United States, Europe and even Saudi Arabia. EADS, the parent company of the Airbus commercial jetliner, and BAE work on some of the world’s most popular weapons, including the MRAP armored vehicle, the Eurofighter jet and parts for the F-35 fighter plane.
Announced last month, the merger was always expected to face an uphill battle as it came under regulatory scrutiny from multiple governments. France, for example, owns nearly 15 percent of EADS, while Germany’s government has influence through the 14.9 percent that Daimler owns.
“The companies had agreed on how they would be managed, what their strategy would be . . .and even what their dividend levels would be,” said Loren Thompson, a defense industry consultant who advises BAE on multiple issues, including this transaction. “They just couldn’t get buy-in from the French and German governments.”
On Wednesday, the companies said that 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 U.S. arm of the combined company also would have needed approval from the Committee on Foreign Investment in the United States, known as CFIUS, as well as clearance from the Pentagon’s Defense Security Service to do national security work for the government. The separate companies already have such clearance.
A Pentagon spokeswoman declined to comment Wednesday on the collapse of the deal, noting that there was never a formal agreement for U.S. officials to consider.
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