"Major Tom" brought to earth as Merkel says 'Nein'

Tom Enders was flying high six weeks ago; newly elevated to the top job at Europe's EADS, his secret merger deal to create the world's biggest aerospace group and rid himself of burdensome government meddling was preparing for launch.

But when "Major Tom", a pugnacious paratroop officer in the German army reserve, took off to go hang-gliding in late August, things began to go wrong. A painful crash that left his arms strapped up, robot-style, kept him only briefly from work; but it prevented him flying with Chancellor Angela Merkel on a trip to China where he might have hoped to win her as an ally.

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In the end, it seems unlikely even the most persuasive of her countrymen would have stopped Merkel shooting down the plan to merge with British defense contractor BAE Systems, which the firms pulled on Wednesday after governments failed to agree.

But the tale of Enders' untimely fall to earth will stand as an image of how his daring bid to break the Airbus manufacturer free of political interference was brought down by exactly the kind of diplomatic turbulence he had hoped to put behind him.

Within a couple of weeks of his accident, word of the $45-billion merger talks leaked, triggering a regulatory deadline in Britain to wrap up a deal by Wednesday; an ill-tempered free-for-all broke out among ministers in Paris, Berlin and London as well as corporate and institutional shareholders, many of them suspicious that Enders had been keeping them in the dark.

Yet although the 53-year-old launched the idea with BAE Chief Executive Ian King in total secrecy in May, shortly before succeeding Frenchman Louis Gallois as CEO of European Aeronautic Defence and Space Co. on June 1, the straight-talking Enders had never hidden his disdain for a corporate structure designed to protect national interests after a messy marriage 12 years ago.

A particularly vocal public row a couple of years ago when Enders demanded more government backing up front for EADS' new military transport aircraft, the A400M, had won him few friends in politics, not least among his fellow Germans. And he kept on the offensive over the past year about those state holdings.

These clipped EADS' wings, he argued, when it needed to fly free to compete, notably with American arch-rival Boeing.

Addressing investors' doubts, he acknowledged during a presentation in London: "This will not go down in history as the deal with the most cost synergies."

Rather, as he wrote to employees of the group whose painful creation he witnessed at first hand in 2000, the merger would liberate EADS from constraints built into it at birth: "If we succeed and if the EADS shareholder pact can be dissolved, our governance will be significantly simplified and 'normalized'."


In the end, some will see an irony in that it was this very web of interlinked and competing European interests that brought down his plan, codenamed Hawthorn, to bring together Elm - as in E for EADS - and Birch - BAE - its partner in the Eurofighter jet and a big supplier of military hardware to the Pentagon.

Though there was also skepticism among private shareholders, who questioned the benefits of the complementing airliners with weaponry in the combined group, it was crosswinds from political leaders that downed the talks before any merger deal was ready.

French and British officials said their differences, once seen as the toughest to overcome, had been settled; London had accepted a continued French state shareholding and Paris agreed to limits it had sought to avoid. They both pointed to Berlin, where Merkel and her ministers kept stony silence, as the principal naysayer when time ran out for talks on Wednesday.

"It's a German government decision," one French official said. "It's a great shame, because ... we had made progress.

"It would seem that the chancellor does not want the discussions to continue."

In London, a source said: "It was absolutely heading in the right direction ... There was very significant progress with France. There wasn't the same progress elsewhere."

The German government, which unlike France is not directly a shareholder had, sources said, been offered parity with Paris in any combined group - something it wanted since carmaker Daimler has been looking to give up the biggest German stake in EADS.

While others felt Berlin was offered good terms, including a stake in the firm and guarantees of jobs and office locations going to Germany, sources in the German government said a range of factors had soured Merkel on Enders' proposals. Those ranged from questions over the business logic and fears of damaging sales by possibly increasing state involvement to discomfort with involving Germany, still scarred by its militarist past, in what would become the world's biggest armaments manufacturer.

As once source close to Merkel said: "Defense is an especially sensitive subject in Germany."

A London hedge fund manager, who profited from the collapse of a plan that had depressed EADS shares and boosted BAE's, reckoned Enders had been fighting a losing battle from the first: "It proves that you can try to take the politics out of EADS," he said. "But you can never take EADS out of politics."


There were those who felt the managements' miscalculation had been in the very secrecy they hoped to maintain until a deal could be worked out away from the glare of public politicking.

A source close to the Spanish government, which also has a stake in EADS, told Reuters: "The fact that they tried to handle this deal behind the backs of the governments, who are the main shareholders, was a major error."

Enders' position may now be questioned and EADS's ownership structure may in any case face a major shake-up as Daimler and French conglomerate Lagardere try to sell out, disrupting a complex and partly secret set of internal pacts.

The CEO, who has relished publicity stunts like jumping out of his own firm's new military transporter from 12,000 feet, may now look back on where things went sour in talks that one source involved described as starting as "a bit of banter" between Enders and King.

Within weeks of taking over the top job, that vague idea turned into a serious project in early July during a meeting at London's City Airport among a small group from both firms.

Later that month, wider discussions including lawyers and bankers sketched out a plan that would fix the share of EADS investors in the combined group at 60 percent and BAE at 40.

Over the summer, government officials were getting involved - though not quickly enough for the liking of some ministers.

And the corporate teams were caught off guard when, on September 12, just two weeks after the hang-gliding accident had disrupted Enders' plan for an Airbus-centered trip to China with Merkel, the news of the talks leaked and Britain's takeover regulator set a 30-day clock ticking for them to make shareholders an offer - or show justification for extending the timetable.

In the end, it was clear that, for now at least, it was a deal that wouldn't fly.

(Additional reporting by Sophie Sassard, Sinead Cruise, Tim Hepher, Adrian Croft, Gernot Heller and Elizabeth Pineau; Writing by Alastair Macdonald, editing by Peter Millership)