News Analysis: Missteps Doomed Merger of EADS and BAE — News Analysis

It was never going to be a sure bet, given the complexities of the two companies’ operations and the political sensitivities that are almost always stirred by the prospect of a cross-border combination of high-flying industrial champions.

But regardless of what the companies obviously felt was a compelling rationale for the deal, which they called off on Wednesday, analysts and industry executives say the EADS and BAE managements may not have fully fathomed that their merger mission was as much diplomatic as economic. In any case, once word of the negotiations leaked out and made headlines on Sept. 12, months of back-channel discussions with government leaders were suddenly thrust onto a public political stage, where German opposition ultimately doomed the deal.

Whether Thomas Enders, the German chief executive of EADS, might have eventually been able to get his home government’s sign-off if the discussions had remained quiet, is anyone’s guess. After all, in midsummer he had received a green light from Berlin to engage in exploratory talks with BAE, according to people involved in the negotiations. But after the news leak triggered a British regulation that put a 28-day deadline on the negotiations, the companies were in a race against the clock.

“The speed of states isn’t the speed of commerce,” said Olivier de France, a defense policy analyst at the European Council on Foreign Relations.

The precise consequences of that failed exercise for the companies and for the affected countries are still unclear and may not become apparent for months. Investor confidence has been shaken, at least temporarily, in Mr. Enders, and in Ian G. King, his counterpart at BAE. Some wonder whether the two companies, having found less fertile ground in Europe than hoped, might begin to set their future sights for growth abroad.

“I think it could create some question marks as to where investment is placed in the future,” said Howard Wheeldon, director of policy at the British arms industry trade body ADS.

In refusing to grant the merger its full blessing, without attaching strings the companies would not accept, Germany judged that the country had more to lose — in prestige and in future jobs — than to gain. And for that, some blamed not only the German chancellor, Angela Merkel, but the rough-edged Mr. Enders as well.

“Tom is an industrialist, not a statesman,” said one person close to the negotiations, who spoke only on condition of anonymity because the discussions were supposed to have remained confidential. If Mr. Enders erred, this person said, it was in “trying to serve the interests of his company and ignoring those of his government.”

Others gave Mr. Enders significant points for trying. “This will go down on his résumé as a failure,” said Alexandra Ashbourne-Walmsley, a military and aerospace consultant in London. “But it was quite a bold move and showed he was not prepared to be a stooge.”

Since EADS’s creation in 2000 from a combination of French, German and Spanish aerospace assets, its management — under Mr. Enders and his predecessors — has chafed at the frequent attempts by government stakeholders to influence decisions at the company. So it is no small irony that the merger plan — which would have expressly limited the states’ power to a veto of hostile takeovers — was brought down by exactly the kind of political interference he had hoped to end.

“This is proof of concept that European integration and cooperation doesn’t work,” huffed one frustrated EADS executive, who insisted on not being named for fear of political repercussions. “Parochialism is not the way forward.”

To be sure, the talks were also bedeviled by a couple of bad breaks.