* France, Britain said to support deal, Germany seeks stake
* Shift in Oct. 10 deadline not ruled out
* New hurdle over future status of core shareholders
* Shares in both companies edge higher
* EADS shareholders unhappy
By Gernot Heller, Emmanuel Jarry and Tim Hepher
BERLIN/PARIS, Oct 5 EADS and BAE
Systems have edged closer towards winning political
backing for a $45 billion merger to create the world's biggest
arms group amid positive signals from Britain and France, but
German misgivings over control is a big obstacle, sources close
to the talks said.
A number of potential stumbling blocks have emerged since
the proposed tie-up between the Airbus manufacturer and the
British defence group was announced last month. These include
conflicting political interests in Britain, France and Germany,
as well as some shareholders' dissatisfaction with the terms.
Negotiators are sticking to a British regulatory deadline of
Oct. 10 to keep up pressure for a face-saving deal squaring
German demands for equal treatment to France, which would have a
government stake, with company opposition to outside influence.
But the door has been left open to a 1-2 week delay if the
talks show enough progress, according to dates circulated for
possible internal union briefings on the deal. "We are working
towards Oct. 10," a person familiar with the EADS position said.
Two sources familiar with the talks said next Wednesday's
deadline, imposed by UK regulators, was optimistic but that the
companies would not release pressure for a deal by asking for an
extension without a decisive step forward in the talks.
The wait means another frustrating weekend for minority
investors who have demanded details of the proposal to create an
aerospace and arms company to rival the U.S. giants.
"As far as we are concerned, there's been no attempt to
explain the rationale for the deal to investors," said Barry
Norris of Argonaut Capital Partners, an EADS investor. "This is
one of the worst ever proposed mergers I have ever seen."
Shares in both companies edged 1 percent higher. EADS is 12
percent below its level before talks became public last month.
"I am somewhat reluctant to let it go at the current
levels," said one of the top 40 EADS investors, who declined to
be named, adding:
"If it does go through I will be disappointed because I
wanted to own EADS for its significant earnings stream in civil
aerospace which was improving markedly ... If the deal goes
through I get that earnings stream diluted by a lower, if not
negative, growth defence business."
GERMANY HOLDS OUT
Germany is holding out for the same role as France, which
would hold 9 percent in the new group, and wants to host the
headquarters. This has put it at odds with EADS, which wants
minimum political interference.
Germany's demand would entail Berlin buying a stake in EADS
currently owned by carmaker Daimler. But EADS chief
Tom Enders continued to rebuff the idea which also worries UK
officials anxious to prevent damage to BAE's vital, but
sensitive, U.S. defence markets.
Britain, France and Germany held "reasonably constructive"
talks at official level, a person familiar with the matter said,
but securing a deal in time for an Oct. 10 deadline looks
increasingly likely to need a push from European leaders.
"Britain and France have moved further forward (towards
accepting the deal); Germany's position has not changed," a
person familiar with the negotiations said.
Talks between Germany and EADS itself are at a standstill
while the three affected nations discuss a political response.
A French parliamentary source briefed on the negotiations
said that France, Britain, EADS and BAE are now agreed
on the deal's basics, but Germany still had to be convinced.
"The decision is now at the highest level. It may be settled
between (French President Francois) Hollande and (German
Chancellor Angela) Merkel," the source said. "Hollande is ready
to call Merkel if needed."
The two leaders held inconclusive talks on Sept. 22.
While Berlin is widely portrayed as isolated, German sources
insist it is France's determination to keep a state shareholding
and a major headquarters, undervaluing Germany's role in EADS
and European defence, that has led to the impasse.
"It is a complex and sensitive process and these are not
issues that are easily sorted out with side deals in the
corridors," a source involved in the talks said.
"Everyone is trying to inch forward to a position of comfort
on this (point), but you can expect a few convulsions along the
way," said another person involved in negotiations. "You don't
want a situation where governments feel that if more shares
become available, they can go ahead and buy them."
The three nations are also negotiating National Security
Agreements in addition to anti-takeover golden shares.
EADS is controlled by a pact between the French state and
two core industrial shareholders, Lagardere and German carmaker
Daimler, which collectively own 45 percent.