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TEXT-BAE SYSTEMS PLC - Merger Update <BAES.L>

(The following statement was released by BAE Systems)

Oct 10 (Reuters) - NOT FOR RELEASE OR PUBLICATION ORDISTRIBUTION, DIRECTLY OR INDIRECTLY (IN WHOLE OR IN PART) IN,INTO OR FROM ANY JURISDICTION WHERE TO DO SO WOULD CONSTITUTE AVIOLATION OF THE RELEVANT LAWS OF ANY JURISDICTION

BAE Systems plc and EADS N.V.

Termination of talks regarding thepossible merger of BAE Systems and EADS

Following the announcements made by BAE Systems plc ("BAESystems") and EADS N.V. ("EADS") on 12 September 2012 inrelation to a possible combination of their businesses through adual listed company structure, BAE Systems and EADS announcethat they have decided to terminate their discussions.

BAE Systems and EADS believe that the merger was based on soundindustrial logic. It represented a unique opportunity to createa combination from two strong and successful companies greaterthan the sum of the parts. The merger would have produced acombined business that would have been a technology leader and agreater force for competition and growth across both thecommercial aerospace and defence sectors and which would havedelivered tangible benefits to all stakeholders. Discussionswith the relevant governments had not reached a point where bothcompanies could fully disclose the benefits and detailedbusiness case for this merger. BAE Systems and EADS are,however, confident that these would have provided a strong caseto take to their shareholders.

As between themselves, BAE Systems and EADS had agreed theprincipal terms of the merger, subject to the approval of theirrespective Boards, including:· The commercial terms of the merger;

· The legal structure of the merger;

· Governance arrangements which would enable the combinedbusiness to operate in a normal commercial manner;

· A unified management and Board structure;· The strategy for the combined business;· Near-term dividend policy;

· The cost saving and revenue benefits of the combinationand associated implementation plan.

From the outset of discussions between the parties, both BAESystems and EADS were clear that they would proceed with amerger of their businesses only if a transaction structure couldbe created that aligned the interests of the parties'stakeholders and received their support. BAE Systems and EADSworked constructively to deliver such a structure.

Notwithstanding a great deal of constructive and professionalengagement with the respective governments over recent weeks, ithas become clear that the interests of the parties' governmentstakeholders cannot be adequately reconciled with each other orwith the objectives that BAE Systems and EADS established forthe merger. BAE Systems and EADS have therefore decided it isin the best interests of their companies and shareholders toterminate the discussions and to continue to focus on deliveringtheir respective strategies.

Ian King, Chief Executive of BAE Systems, today said:

"We are obviously disappointed that we were unable to reach anacceptable agreement with our various government stakeholders.We believe the merger presented a unique opportunity for BAESystems and EADS to combine two world class and complementarybusinesses to create a world leading aerospace, defence andsecurity group.

However, our business remains strong and financially robust. Wecontinue to see opportunities across our platforms and servicesofferings and in the various international markets in which weoperate. We remain committed to delivering total shareholdervalue and look to the future with confidence."

Tom Enders, Chief Executive of EADS, today said:

"I'd like to thank everybody who supported us, in particular allthe colleagues at BAE Systems and EADS for all their hard workand dedication to this project in recent months. A specialthank-you goes to Ian King for his trust and partnership. It is,of course, a pity we didn't succeed but I'm glad we tried. I'msure there will be other challenges we'll tackle together in thefuture. EADS will continue on its international growth path andour shareholders can continue to expect profitable growth,excellent liquidity and programme execution based on a strongorder book."

Enquiries:BAE SystemsFor Investors:

Andrew Wrathall, Head of Investor Relations

Tel: +44 (0) 1252 383 455For Media:

Charlotte Lambkin, Group Communications Director

Tel: +44(0) 78 0171 7739

John Suttle, Senior Vice President, Communications

Tel: +1(703) 344 8508EADS

Rainer Ohler, Head of Group Communications

Tel:+33 (0)5 81 91 81 38

Martin Agüera, Interim Head of Media Relations

Tel:+49 (0)89 607 34735

Matthieu Duvelleroy, Media Relations France

Tel: +33 (0)1 42 24 24 25This announcement, which is being made with EADS consent, ismade inaccordance with Rule 2.8 of the City Code on Takeovers andMergers (the"Takeover Code").

A copy of this announcement will be made available on BAESystems' website at

EADS's website at .This announcement does not constitute an offer for sale of anysecurities oran offer or an invitation to purchase any securities in theUnited States.Securities may not be offered or sold in the United Statesabsent registrationunder the US Securities Act of 1933, as amended (the "SecuritiesAct") oranother exemption from, or in a transaction not subject to, theregistrationrequirements of the Securities Act. There will be no publicoffering ofsecurities in the United States. Holders of BAE Systemssecurities or of EADSsecurities who are US persons or who are located in the UnitedStates areurged to read any relevant documents furnished or filed with theSEC becausethey contain important information. Any such documents furnishedor filed withthe SEC, will be available free of charge at the SEC's web siteat.This information is provided by RNSThe company news service from the London Stock Exchange

((louise.heavens@thomsonreuters.com)(+44 20 7542 1897)(ReutersMessaging: louise.heavens.thomsonreuters.com@reuters.net))

Keywords: EADS BAE/