Deadline latest weapon in EADS-BAE merger talks

PARIS (Reuters) - Negotiators working on a $45 billion merger of Airbus parent EADS and BAE Systems faced mounting calls on Thursday to extend their talks, but any extension to an imminent deadline next month is in doubt.

German Defense Minister Thomas de Maiziere joined France in pressing for more time to address concerns over strategic interests and jobs as the October 10 deadline set by UK regulators emerged as a flashpoint in the talks.

"Perhaps we need more time. It depends on the answers for our questions and so I think we need more time," de Maiziere told reporters at a meeting in Cyprus.

The French and German governments want to safeguard their influence over EADS while special arrangements will be needed to ringfence sensitive operations, including work BAE does in the United States and on Britain's nuclear submarines.

The U.S., Spanish and Saudi governments could have preconditions for the deal to succeed, as well.

Yet with two weeks left, EADS and BAE have little incentive to seek an extension to the deadline.

In the past two weeks, investors uncertain about the deal have stripped 4 billion euros from the value of EADS, illustrating the risk Chief Executive Tom Enders could face if he agrees to expose the stock to a further month of negotiation.

BAE shares have also shed their initial gains and analysts warn they may struggle to carry investors with them beyond October 10 if the talks show no signs of progress.

For these reasons, experts say a bid for an extension could indicate progress. They argue if there is stalemate running up to the deadline, leaders of both companies could be forced by investors to abandon the plan.

INFLUENCE AND TRADE-OFFS

The merger to create the world's biggest defense and aerospace company would dilute the influence of the French, German and Spanish governments in the company, prompting negotiations over their roles in the future.

German reservations include how to safeguard jobs and protect the merged firm from any future hostile takeover, a government document obtained by Reuters on Monday showed.

On Wednesday, a French government source said France would want to retain certain rights, as well.

EADS is standing firm, reiterating its "intention and current expectation" to provide further clarity by that date.

Technically, extensions to the UK stock market deadline are relatively simple and are usually granted, lawyers say. Indeed, one adviser to BAE said the two companies were likely to ask for more time.

"BAE and EADS will almost certainly seek an extension to the October 10 deadline because there is still so much to discuss. Between the companies themselves and with all of the governments involved," the adviser, who did not want to be named, said.

Yet in classic European negotiating style, as seen on issues from farm subsidies to national bailouts, talks generally go down to the wire.

Raising the threat of a missed deadline, or demanding it be kept, is a tried and tested tactic in the brinkmanship so often seen among the 27 nations of the European Union.

De Maiziere called talks with his British and French counterparts on Wednesday evening "constructive".

"This is a complex situation, there are a lot of questions and conditions, nothing has (been) decided yet ... We will keep in contact," he said.

European governments all face severe spending pressures, but a stand-off between France and Germany over control of EADS is seen as the bigger roadblock, rekindling a climate of mistrust which set in during management rows from 2005 onwards.

France holds a 15 percent stake in EADS and wants to retain its right to influence group strategy. Spain owns 5 percent.

Germany is not a direct shareholder but sees the transaction as a chance to enlarge its influence. At the same time, EADS and BAE are pressing for less political influence.

Signs of discord first emerged at the weekend when Reuters reported that France appeared to rebuff German proposals for a common position.

EADS and BAE have said they will offer the governments of France, Germany and Britain a "special share" in the new company, allowing them to block any future hostile takeover, but are determined to prevent any meddling in management decisions.

German carmaker Daimler has refused to be dragged into the dispute, even though with 22.5 percent of the voting shares and a position as core shareholder alongside France's Lagardere its influence is critical.

"It is not our key responsibility to determine the future strategy of the aerospace industry," Chief Executive Dieter Zetsche said at the Paris Auto Show.

(Additional reporting by Michele Kambas, Adrian Croft, Rhys Jones, Gernot Heller, Mark John; editing by Jason Neely)

Source: http://news.yahoo.com/deadline-latest-weapon-eads-bae-merger-talks-170436198--finance.html

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