Germany looks into planned merger of European defence giants EADS and BAE

The German government is currently looking into the details of the planned tie-up of European aerospace and defence group EADS NV (EPA:EAD) and British defence contractor BAE Systems Plc (LON:BA) and will give an answer within the deadline, Chancellor Angela Merkel told a news conference on Monday.

The two companies announced last week negotiations to combine their operations creating a world class international aerospace, defence and security group which would benefit from cost savings from procurement and sourcing efficiencies available to the enlarged group and ensuring significant new business opportunities, they have said.

Under the terms being discussed, EADS’ current shareholders would own 60% in the combined group, while the shareholders of BAE Systems would hold the other 40%, the companies said. The resulting group would have substantial manufacturing and technology excellence centres in France, Germany, Spain, the UK and the USA.

EADS and BAE Systems have started discussions with various governments about the effects of a potential merger and plan to issue special shares to each of the French, German and UK governments to replace the UK government’s stake in BAE Systems and the stakeholder concert party arrangements in EADS, the have said.

Merkel said the German government is evaluating the proposal and is talking with others on the planned deal.

According to industry sources cited by the Financial Times Deutschland earlier, EADS would be willing to give Germany a veto right and job guarantees in order to secure its approval for the deal.

The two companies have until October 10 to announce a deal, with BAE Systems saying it would file for an extension if talks continued beyond that date.