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World's Biggest Arms Merger Called Off, As BAE And EADS Abandon Tie Up

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The £28bn merger deal between BAE and EADS has been called off | AP

Plans for a £28 billion merger between defence giant BAE and French rival EADS have been scrapped after political bickering stalled negotiations.

The deal would have created a defence titan with combined sales of £60bn and more than 220,000 employees, around 52,000 of them in the UK.

BAE said in a statement it had become clear the interests of government stakeholders - including those in France and Germany - could not be reconciled with each other or with the company's objectives.

Chief executive of BAE Ian King said the British business remained "strong and financially robust" and added: "We are obviously disappointed that we were unable to reach an acceptable agreement with our various government stakeholders."

Both parties could have asked for the merger talks to be extended, but have decided that it is in the best interests of both BAE and EADS to abandon the talks now.

According to Reuters, Germany dealt the latest blow to the troubled deal, with reports suggesting that German chancellor Angela Merkel opposed the merger.

"Merkel is against the deal but has not given reasons," a source involved in the negotiations said.

France has a direct stake in EADS while German influence is held through a 22% stake owned by car maker and industrial group Daimler - but it's understood Germany was insisting on a 9% stake in the enlarged group to match France's holding.

British politicians have recently voiced concerns over the level of Franco-German ownership when the UK would have no direct stake - forty-five Conservative MPs signed a letter to David Cameron insisting that stronger conditions should be imposed on the proposed merger of BAE Systems and EADS, with European government stakes to be abandoned altogether if a deal was agreed.

Focus now shifts to whether or not the government will seek to strengthen its "golden share" in BAE by taking an active stake in the company to help safeguard British jobs - a move that union Unite has called for.

The union, which represents more than 30,000 skilled workers across the two companies, had been pressing for guarantees over jobs if the merger had gone ahead.

National officer Ian Waddell said: "The highly skilled workforces of both companies are the beating heart of British manufacturing. A merger, with a jobs guarantee, would have created a strong new company that could have protected the UK's long-term interests.

"There was an industrial logic to the merger, but national and political interests proved to be the stumbling block. The UK government now needs to strengthen its golden share and send a powerful message that it backs British manufacturing and BAE Systems.

"Short-termism cannot be allowed to govern BAE's future. BAE management in the past has made some crucial wrong decisions, such as selling its stake in Airbus in 2006. We need to ensure the company plans for the long term and that short-term investor pressure is balanced with employee representation on the board."

Major shareholders also put the deal under pressure; the biggest shareholder, Invesco Perpetual which owns 13%, released a strongly worded statement on 8 October, suggesting the deal would have a negative impact on the UK firm’s position in the United States, where BAE has unique access as a foreign firm to sensitive defence work.

BAE shares fell 2% in London trading as the news broke, while EADS shares jumped 3%, according to the BBC.

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Filed by Charlie Thomas