Fears deal may fall apart rocks defence firms

SHARES in both BAE and EADS tumbled yesterday, amid fears the £29bn mega-merger could still fall apart because of competing demands.

Among the biggest sticking points are whether the proposed aerospace giant can operate without political interference, as BAE demands, and what the cost savings of the tie-up would be.

BAE Systems closed 7.29 per cent down in trading yesterday at 337.1p, while in Paris EADS fell 10.2 per cent to close at €25.15.

The two firms said earlier this week they were in advanced talks over a merger that would give BAE shareholders 40 per cent and EADS shareholders 60 per cent in a European aerospace and defence giant.

The French and German governments, which each own 22.4 per cent of EADS through proxies and holding structures, need to give the deal a green light for it to go through, and talks are understood to be happening at the “highest level”.

The UK government has a “golden share” in BAE, which allows it to veto any foreign entity from owning 15 per cent of the Airbus parent for national security purposes. It is thought BAE and EADS might also award these special shares to the French and German government if the deal goes ahead.

German car company Daimler, which owns 15 per cent of EADS’s shares, said yesterday that it plans to reduce its stake in the French aerospace firm if the merger happens.

French publisher Lagardère, which owns 7.5 per cent of EADS, added that it needed to look at the deal further before giving it the go-ahead.

Both companies are targeting 10 October as a date for a decision.