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BAE merger may get less antitrust scrutiny

– European Aeronautic, Defence & Space Co.’s planned merger with BAE Systems may escape a full review by European Union regulators because governments can exempt defense-industry deals from antitrust scrutiny.

EU law has a military carve-out clause for the defense industry that allows member countries to exempt companies from having to seek approval for a takeover from European Commission overseers, said Alec Burnside, a lawyer at Cadwalader Wickersham & Taft in Brussels.

“It’s traditionally an area of frustration for the commission when it gets locked out of military mergers and it has always tried to discourage member states from blocking” any probe, Burnside said, though any government order would only cover “purely military aspects” of the tie-up.

“Products with dual civilian-military use, and civilian activities, will still have to be notified to the European Commission,” he said.

EADS, the parent of Airbus, is negotiating with Germany, France, Spain, Britain and the United States on the merger, which would create the largest civil-aviation and defense company, with a combined market value of $45 billion. Management seeking approval of the deal must persuade officials in France, which owns a direct stake in EADS, and Britain, which can veto any change of ownership in BAE.

The British government cited national security issues to exempt BAE’s 1999 purchase of General Electric’s Marconi defense unit from a commission merger review. The French, Spanish and German governments didn’t exempt the companies that formed EADS from a 2000 EU review.

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