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European governments in race to save EADS-BAE merger

By Sophie Sassard and Emmanuel Jarry,

LONDON — Britain, France and Germany pushed on with talks Monday trying to prevent a disagreement over state shareholdings from wrecking a proposed merger of EADS and BAE Systems.

Plans by Airbus parent EADS and British arms firm BAE Systems to create the world’s largest aerospace and defense company must overcome a knot of political concerns over security and jobs.

Facing a Wednesday deadline set by Britain, the goal is to make enough progress over the central issue dogging the talks on the $45 billion deal to allow BAE chief executive Ian King and Tom Enders of Franco-German EADS to seek an extension.

“If they can get the central issue of shareholding resolved, then there’ll probably be some more time to tie up other issues like headquarters, weights on the board and other matters,” said a senior diplomat following the talks. “Otherwise, Enders and King have signaled they will pull the plug on the 10th [Wednesday].”

Officials failed to resolve incompatible demands over state involvement in a video conference Friday. EADS and BAE denied German reports that the talks had collapsed.

British Defense Secretary Philip Hammond warned that Britain would block the deal if key “red line” priorities were not met, including an ability to cap the influence that the French and German governments would have on the new company. He told the BBC on Monday he saw little chance of a deal being reached by Wednesday’s deadline.

BAE’s top shareholder, Invesco Perpetual, blasted the proposed deal on Monday, citing state interference, poor terms and a lack of strategic rationale. The investment company, which owns 13 percent of BAE, is reported to have clashed in private with BAE leaders as soon as the talks surfaced last month.

As problems pile up, all sides have moved to deflect the responsibility in case the talks break down, but industry experts say it is too early to say which way the talks will go.

EADS was created from a merger in 2000 only after talks between France and Germany broke down and the plan collapsed, bringing the two sides back together to negotiate a complex shareholder pact limiting the role of the French state.

To improve the chances of winning approval in the United States, Britain wants France to commit in writing to forego any future increases in its shareholding, which would start out at 9 percent under a proposed 60-40 split between EADS and BAE.

France has told partners it has no intention of upping its stake but is unwilling to surrender sovereignty over future industrial policy. Barring a wider escalation of the problems surrounding the deal, people briefed on the discussions said a formula would probably be found to get around the impasse.

Government leaders are being kept in the loop on the talks but there are no plans for direct intervention or a three-way summit, officials said.

— Reuters

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