- Associated Press - Wednesday, October 10, 2012

LONDON (AP) — British defense contractor BAE Systems PLC and European counterpart EADS NV on Wednesday abandoned a proposed merger that would have created a global defense and aerospace giant.

The companies said they “decided to terminate their discussions” over the proposed merger 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 with EADS, the parent of Airbus, would have created a global aerospace and defense company that would have leapfrogged U.S.-based Boeing Co.

The heads of both companies expressed disappointment at the outcome.

“It is, of course, a pity we didn’t succeed, but I’m glad we tried,” EADS Chief Executive Officer Tom Enders said.

“We are obviously disappointed that we were unable to reach an acceptable agreement with our various government stakeholders. We believe the merger presented a unique opportunity for BAE Systems and EADS to combine two world-class and complementary businesses to create a world-leading aerospace, defense and security group,” BAE chief Ian King said.

The companies faced a Wednesday deadline on whether to go ahead with the merger, ask for more time or call it off.

The deal was fraught with difficulties from the start because of political objections from the governments of the United Kingdom, France and Germany. All three would have had to approve the deal.

France is the only government that owns a direct stake in either of the two companies, but Germany long has held sway in EADS via shares held by automaker Daimler and private and public banks. Berlin was arguing for a slice of its own in the new company in order to maintain that historic role.

But Britain and the companies’ executives were wary about handing out too many shares to governments. If the new entity was perceived as state-owned, it could affect its ability to vie for contracts in the U.S. and Asia, Mr. Enders told the German newspaper Bild in an interview that the company posted on its website.

EADS shares jumped on the news that the merger was off, trading 3.7 percent higher in early afternoon in Paris. BAE shares recovered earlier losses to trade flat.

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