M&A: Merkels and Acquisitions

**The depth of the Rhine cannot be told by the naked eye; one has to take a plunge to feel it for what it is.** BAE Systems and EADS tried to navigate through such similar, murky currents in their bid for a merger. Their efforts were drowned, however, by a tactical showing of German calculation.

The British-owned arms producer, BAE Systems and the European Aeronautic Defence and Space Company (EADs) were moving towards an beneficial agreement for both parties.

In the uncertainty of the US scaling back its military operations, BAE would have gained a stronger and diverse corporation, while EADS would have in turn clinched a significant share of the US market – something historically difficult for the European giant. It was a match made in heaven, creating the world’s largest aerospace defence firm. Or so it seemed.

While the largest stumbling block to plans appeared to be American, the lethal blow dealt was actually German. Despite US consent to the condition that the nation’s shareholding would be limited to nine per cent in the new structure – to which all parties agreed – Germany vetoed the deal despite possessing no equity in EADS. The 60/40 merger and proposed relocation of the defence business side to London would have weakened German influence and estranged an international champion in a strategic industry, it protested. No surprise then, that German-owned bank, KfW later announced its takeover of Daimler’s stake in EADS.

Germany’s ascent did not happen overnight. Indeed European integration opened doors for firms of the old continent. German industry began to swoon; riding the wave of their superior technology and higher competitiveness. Exports increased year on year. Adopting the Euro smoothened trade further.

Locking into the Euro devalued relatively its currency, making German goods and services increasingly competitive to the rest of the world. While the US accused the Chinese of currency manipulation, keeping its Yuan artificially low, Germans enjoy the benefits of a ‘devalued’ currency without backlash.

Germany and France have been the traditionally dominant powers in the EU, checked by a more sceptical Britain. Following the financial crisis, the lines have been redrawn. France is now plagued by high public debt (91 percent of GDP) and low competitiveness. Britain toys with a referendum on EU membership at the next election. Thefeore when the Southern European economies went cap-in-hand for rescue packages, it was Germany that had the financial muscle to back it up. This combination of events has made it the most powerful voice in Brussels proceedings. When Antonis Samaras was elected Greek prime minister, his first official visit abroad was of course to Berlin. German influence is ever present in European politics. Proposals for a banking union, a latest effort to salvage the monetary union, will be decided on German terms. In fact the pan-European Monetary Union bank deposit insurance scheme has already been erased from the blueprint following German intransigence.

Meanwhile, Angela Merkel asks for more European influence over the fiscal policies of member states. It smacks of cloak-and-dagger tactics to assert itself at the pulse of European policy-making. What two world wars failed to bring has been made possible by the EU and the financial crisis: a new German throne for Europe.