EADS Said to Mull Deadline Move as BAE Talks Go Into Weekend

European Aeronautic, Defence & Space Co. (EAD) and BAE Systems Plc (BA/) are working through the weekend to win government backing for their proposed merger, raising the odds of missing a midweek deadline to formalize their plan.

The companies will decide by the start of the week whether to extend the Oct. 10 time limit, said a person with knowledge of the negotiations. A decision hangs on progress with governments this weekend, said the person, who asked not to be identified because the talks are private. EADS and BAE said they’re striving to meet the deadline and that talks continue.

With time running out, EADS and BAE have sought to dispel government concern about how a combination of Europe’s largest aerospace company and the biggest defense contractor will affect the states’ role as well as jobs and the centers of command. Germany, which doesn’t own a direct stake in EADS, has lobbied for more involvement, a demand that contrasts with EADS’s efforts to limit government involvement in the new firm.

“We have said what we consider as being our requirements,” French President Francois Hollande told journalists at a press briefing in Malta yesterday. “Now it is up to the companies to continue discussions, negotiations, knowing what the French position is in terms of the shareholding, the location of headquarters and the protection of our French defense industry.”

Must Notify

The deadline set for 5 p.m. on Oct. 10 by the U.K. Takeover Panel can be extended. EADS Chief Executive Officer Tom Enders said last week that he doesn’t want to go on much longer without a firm plan he can present to shareholders and employees. EADS has lost 11 percent since the proposed merger was first reported by Bloomberg News on Sept. 12.

BAE also said discussions were continuing. If at any point the company thought the deal had collapsed, it would notify the London Stock Exchange (LSE), spokeswoman Charlotte Lambkin said by telephone today. EADS spokesman Rainer Ohler said governments have notified the companies of their positions, denying reports that the merger had failed. Combining EADS and BAE would create the largest aerospace and defense company in the world by sales.

Der Spiegel reported in its online edition yesterday that talks had all but ended, citing politicians it didn’t identify. Financial Times Deutschland reported that talks had been suspended and would continue at the start of next week.

In the U.K., 45 Conservative party lawmakers have written to Prime Minister David Cameron demanding French, Spanish and German government share holdings in the combined company be removed as a condition to their support for the deal. Concerns raised in the letter include national-security risks, BAE’s U.S. defense contracts and possible “interference” by foreign governments to protect jobs in their own nations over the U.K.

Daimler Stake

The French shares in Toulouse, France-based EADS are voted by Lagardere SCA (MMB), a French publisher that owns 7.5 percent, through an agreement that keeps precise balance between French and German stakes. While Germany owns no shares, carmaker Daimler AG has served as its proxy, controlling a 22.5 percent stake that’s equivalent to the French shareholdings.

The proposed merger, which would give EADS shareholders 60 percent of the company and BAE shareholders the rest, would see the French government shareholding shrink to 9 percent. Before the EADS-BAE merger talk became public, Germany had said it planned to buy a third of the EADS stake controlled by Daimler, or 7.5 percent, and hold it through state-owned bank KfW. That agreement has been put on ice by the merger talks.

Chancellor Angela Merkel’s spokesman Steffen Seibert told a government press conference yesterday that “intensive talks” are continuing. He reiterated that comment after Der Spiegel said negotiations had reached a gridlock. A U.K. government official also confirmed that talks are continuing, without elaborating.

To contact the reporters on this story: Andrea Rothman in Toulouse at aerothman@bloomberg.net; Helene Fouquet in Paris at hfouquet1@bloomberg.net; Jacqueline Simmons in Paris at jackiem@bloomberg.net

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

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