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EADS CEO Says Government Talks Advance to Close BAE Deal

European Aeronautic, Defence & Space Co. (EAD) Chief Executive Officer Tom Enders said efforts are progressing to win shareholder backing for his planned $45 billion merger with BAE Systems Plc (BA/), while mounting pressure on governments to cooperate or risk seeing a deal fall apart.

“I’m pleased with our progress so far,” Enders said in a letter to employees that was obtained by Bloomberg News. Discussions with governments to address their concerns are “constructive and advanced,” he said.

Enders’s comments are the first direct message to employees since the companies said Sept. 12 that they plan to combine, in an attempt to create a European aerospace and defense company to match those in the U.S. Enders, who has publicly criticized a creeping increase in political involvement at EADS, said the shareholder pact created in 2000 to balance French and German interests would fall by the wayside in a merger, calling that element a “go” or “no-go” for the planned combination.

German Chancellor Angela Merkel and French President Francois Hollande will meet this weekend in Germany where they will discuss the proposal. Merkel said today she wants to overcome differences with France and “find a solution” as the governments weigh their response ahead of an Oct. 10 deadline.

With France owning a 15 percent stake in EADS, and the U.K. able to veto any takeover of BAE, the companies need government backing for their merger that would mark the biggest attempt yet at building a pan-European corporate champion. The German government controls no direct holding in EADS, though its interest is represented by shareholder Daimler AG.

Normal Company?

“If we succeed and if the EADS shareholder pact can be dissolved, our governance will be significantly simplified and ’normalized,’” Enders said in the letter.

To assuage concerns about job losses from combining Europe’s largest civil aircraft maker and its largest defense contractor, Ender said “the two companies are largely complementary and have very little overlap.”

EADS and BAE are seeking to merge to combine Airbus SAS civil aircraft and BAE’s cybersecurity and other military products, helping balance earnings swings between the two industries. A combination would bring the merged company closer to a structure resembling Boeing Co. (BA), Airbus’s biggest rival.

Enders said there will be “real operational and industrial synergies across all combined businesses, in particular in military aircraft, defense electronics, missiles and security/cybersecurity,” according to the letter. “This would be the best way to secure a good future for these businesses.”

To contact the reporters on this story: Robert Wall in London at rwall6@bloomberg.net; Andrea Rothman in Toulouse at aerothman@bloomberg.net

To contact the editor responsible for this story: Benedikt Kammel at bkammel@bloomberg.net

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