September 23, 2012 / 1:22 PM / 5 years ago

BAE/EADS to ring-fence U.S. firm to save $45 bln deal-paper

LONDON, Sept 23 (Reuters) - Britain’s BAE Systems and Europe’s EADS have told the Pentagon they will create a ring-fenced U.S. defence firm with a board of U.S. nationals to win approval for their proposed 28 billion pound ($45 billion) merger, the Sunday Times newspaper said.

The American arm will have just one British director - BAE’s chief executive Ian King - while no French or German executives will be given seats, or be able to see details of U.S. contracts, the paper said, without citing sources.

Earlier this month British defence company BAE and European aerospace giant EADS announced that they were in early talks to create a global giant to compete with the likes of Boeing and Lockheed Martin, but the two companies face growing political obstacles to the deal.

France, which has a 15 percent stake in EADS, and Germany, which has no direct stake, pledged on Saturday to consult closely on the deal but announced no joint decisions.

The offer to create a ring-fenced U.S. company is aimed at preserving BAE’s privileged relationship with the Pentagon, which is governed by a unique contract, the special security agreement (SSA), the Sunday Times said.

Senior sources at BAE told the newspaper that the merger will not go ahead unless the SSA is preserved.

On Monday U.S. Air Force Secretary Michael Donley said the U.S. Defense Department needed more details to be able to assess the security implications of the proposed tie-up.

Some European analysts have said the deal would have negative U.S. security implications, suggesting that U.S. officials could order BAE to divest some business units that do sensitive work for the U.S. military or intelligence agencies.

But sources close to the matter have said there is little overlap in the U.S. work of BAE and EADS, and both firms already have existing security deals that prevent their foreign-based parent companies from influencing their work on sensitive U.S. government programs.

BAE declined to comment. EADS could not immediately be reached for comment.

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