UPDATE - The Deal Is Dead

Last weekend, the Sage wrote that the biggest threat to the completion of a merger between defence giants BAE Systems and EADS was the stiff resistance it faced from national governments, especially those on the continent which own shares in the European firm.

In other words, although the deal made good business sense, the politics was not so clear-cut.

And so it proved. On Wednesday, by which date the two companies had to decide whether to continue with the negotiation process, it was announced that the deal was being dropped. Demands by governments on all sides had led to a stalemate, with intransigence from Germany in particular dashing any hopes of a compromise.

Sunday’s article also lamented the right-wing media’s eagerness to turn public opinion against any deal from the moment the idea was unveiled. This week, the very same journalists have scrambled to tell the nation that the mere possibility that BAE may not be able to survive on its own also puts thousands of British jobs in the same jeopardy anyway.

Notwithstanding the apparent desire on the part of the doomsayers to have it both ways, they are right to raise the prospect – previously mooted by your correspondent – of a similar bid for BAE from across the Atlantic, especially in the wake of this week’s events.

Although many in the defence industry may have suspected that the British firm was primed for a takeover, the opening of talks with EADS has confirmed it in the clearest possible terms.

However, the minefield that the British and European firms and their governments have had to navigate – without success – may have deterred bosses and investors at already-thriving companies such as Lockheed and Boeing.

The attitude of the British government to this sort of transatlantic alliance is also unclear. Job prospects aside, the message it would send to a continent from which Britain has already begun to cut itself diplomatically adrift would require careful consideration.

And, since nearly half of BAE’s revenue already comes from contracts held in the US, the profit-making rationale for a tie-up with a giant American rival is questionable.

One thing is for sure, though – nothing is likely to happen soon. The United States is in full election mode, and with a lame-duck Congress to follow before the victor’s inauguration, not to mention a widely anticipated debate over the coming year about the superpower’s military strategy, a long period of uncertainty beckons.

This deal may be dead, but the future of Britain’s defence industry is still very much a live issue.