Political stalemate sinks £30bn defence merger

A proposed £30bn merger between the British defence giant BAE Systems and the European aerospace company EADS collapsed yesterday after weeks of political wrangling between London, Paris and Berlin.

The two firms finally threw in the towel yesterday afternoon on a deal that would have created the world's biggest aerospace and defence group, after failing to unite the demands of the British, French and German governments over how the resulting entity would be run. "It has become clear that the interests of the parties' government stakeholders cannot be adequately reconciled with each other," the companies said. "[We] have therefore decided it is in the best interests of their companies and shareholders to terminate the discussions and to continue to focus on delivering their respective strategies."

The French and German governments each own a 22.5 per cent share of EADS, which makes Airbus aircraft. The British Government has a "golden share" in BAE which allows it to veto a takeover of the company, which is involved in building the US Lockheed Martin F-35 and Eurofighter Typhoon fighter jets, as well as the Royal Navy's Astute class submarines.

Ultimately, the three governments were unable to come close to agreeing how much of the combined business they would own and run, and whether it would be headquartered in Toulouse or Munich.

Both companies pointed to Germany as the main reason for their decision to abort talks ahead of a deadline imposed by the UK Takeover Panel to "put up or shut up". This required the companies to strike a deal or walk away – although it is likely the groups could have been granted an extension if the talks had suggested it would be worthwhile to continue.

Asked if he had encountered more problems with the Germans than the French, the chief executive of BAE Systems, Ian King, said: "That would be an accurate representation".