Mega Defense Firm Merger between EADS and BAE on Verge of Collapse

It was meant to become the largest defense firm in the world, a fusion of the Franco-German company EADS and the British defense giant BAE Systems. But negotiations on the deal have apparently fallen apart after France, the UK and Germany left a meeting on Friday afternoon having failed to settle their differences. At the heart of the dispute was which government shares each country would be allowed to keep in the new company.

Government sources said it was the British and French sides that could not come to an agreement. The government in London wanted to prevent any of the three states from holding more than a 10 percent stake in the merged firm, whereas Paris insisted on keeping more than 10 percent. The government of President François Hollande also wanted to keep open the option of buying more shares in the future.

The German government sought to acquire a stake worth more than €3 billion ($4 billion), or a share of 9 percent. "Britain and France both agreed to this share," said a government source familiar with the negotiations.

Both EADS and BAE have been informed of the deal's collapse. They now have the option of either giving up the merger plans or going to the British stock market and requesting approval for another extension of the merger talks. In the latter case, the firms would have to make further offers to the governments to enable all parties to come to a final agreement.

However, EADS has denied that the talks are near collapse. "We have been informed by the governments about the status of the discussions, but in no way have we been told that the deal is off," a company spokesman told Reuters. "We continue to work towards the October 10 deadline that we have been given by the UK government."