Tories rebel over BAE merger

MPs call on David Cameron to block meager with European rival EADS unless assurances given over national security
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More than 40 Conservative MPs have signed a letter calling on the prime minister to block the BAE/EADS deal. Photograph: Afp/AFP/Getty Images

David Cameron is facing intense pressure from his backbenchers to block the proposed £30bn merger of BAE Systems with its European rival EADS unless "vital safeguards" to protect Britain's national interest are secured.

More than 40 Conservative MPs have signed a letter calling on the prime minister to block the deal unless the French and German governments give up their stakes in the new company.

The 45 MPs called on Cameron to use the government's "golden share" in BAE to win assurances that the merger will pose no danger to national security and there will be no weakening of Britain's special defence links with the US.

The letter was released after the former chancellor Alistair Darling warned in the Financial Times that Britain would be "taken to the cleaners" unless the British government took a direct stake.

In the letter, organised by the Tory MP Ben Wallace, the MPs say: "The proposed takeover of BAE systems by EADS raises a significant number of issues which have profound consequences for Britain. Not only does her majesty's government have an obligation to make a political decision on the takeover, as the guardian of the 'golden share', but it also has a duty to safeguard Britain's national security and economic interests.

"We are concerned at a proposal which will put the bulk of Britain's defence industrial base in the hands of a company predominantly owned by the French and German governments. It has a German CEO and a headquarters already split between France and Holland. Without some vital safeguards we do not think that this deal will be in the UK's national nor manufacturing interest."

Wallace, who is parliamentary private secretary to Kenneth Clarke, is MP for Wyre and Preston North. Many of his constituents work at the BAE plant at Warton.

The merger of BAE and EADS would create the largest defence contractor in the world. BAE is keen for the deal to go ahead to help it cope with the impact of defence cuts around the world. EADS would like to use BAE's position in Washington to break into the US market.

But the Tory MPs and Darling say the merger could be poorly balanced. Under the deal, EADS would control some 60% of the business, while BAE would hold 40%. The French and German governments, which each have a 22.35% share of EADS through direct and indirect shareholdings, would each control 9% of the new company.

On Thursday, Germany's Der Spiegel magazine reported that negotiations between the UK, French and German governments over the deal were close to collapse. However, sources close to the transaction said BAE and EADS remained committed to establishing an agreement by the 10 October deadline.

Darling told the FT it was "totally unacceptable" France and Germany were seeking to take stakes in the new company while Britain was prepared to take a less active role.

He said: "We will be taken to the cleaners. I don't see how you could have a large new company like this with the French and German governments having large direct and indirect stakes and we have none. I would prefer that all three governments had minimal stakes.

"There is a danger that decisions in the defence and the commercial businesses could be taken on the basis of politics rather than what is best."

BAE Systems played down MPs' concerns, saying the structure of the merged business would "enable it to operate in a normal commercial manner which confers the same rights on all shareholders, large and small".

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