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EU ponders £30bn BAE-EADS mega aerospace-military borg

Brussels sayin' yes to gov's pieces o' eight could make or break deal

Questions remain over the likely outcome of a proposed £30bn merger between BAE Systems and EADS which would create the world's second-biggest aerospace and defence company.

Securing government approval for the deal from the French, German and British governments is considered to be pivotal to the merger going ahead. While European law allows so-called government "golden shares" to be issued by defence companies, single market rules do not allow them within other businesses.

The combination of BAE and EADS would create a company that is only 50 per cent defence-focused; but the other half of the business would be civil aviation-focused. Both companies are now likely to have to persuade European officials that the combined group's operations should be regarded as relevant for national security considerations. However, if the plan is considered by Brussels to be illegal, the deal may be in jeopardy.

Although a merger between BAE Systems and EADS would create the world's second-largest civil/military company, the merger creates significant strategic headaches, notably in maintaining BAE's existing close and hard-won relationship with the US.

BAE Systems' information technology division is one of the 10 largest IT providers to the US government. In 2010 US-related contract awards included providing more than 12,000 desktops across the US intelligence community in a deal valued at £192m; a £26m contract to support the Federal Bureau of Investigation's enterprise network operations and information assurance.

BAE Systems' IT business in the UK is divided between specialised ICT for commercial or military use, project management and the work of Detica, the IT service and business and technology consulting firm it owns. Detica provides a range of services, including fraud and serious crime prevention, enterprise information management and business intelligence, risk management and regulatory compliance. Detica was one of the three companies recently shortlisted to provide a service integration and management (SIAM) capability at the Foreign and Commonwealth Office.

The proposed merger is unlikely to markedly affect BAE Systems' IT business and EADS' Astrium and Cassidian communications businesses.

This article was originally published at Government Computing.

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