* Talks resume after failure to agree state shareholdings
* Plan ready to extend deadline if political progress made
* BAE top investor Invesco attacks $45 billion merger plan
By Tim Hepher
PARIS, Oct 8 Britain, France and Germany resumed
talks on Monday to try to prevent a disagreement over state
shareholdings wrecking a proposed merger of EADS and
With just over two days until a 1600 GMT Wednesday deadline
set by the UK, the aim is to make sufficient progress over the
central issue dogging the talks to allow BAE Chief Executive Ian
King and Tom Enders of Franco-German EADS to seek an extension.
BAE's top investor questioned the very rationale of the $45
Plans by Airbus parent EADS and UK arms firm BAE Systems to
create the world's largest aerospace and defence company must
overcome a knot of political concerns over security and jobs.
"If they can get the central issue of shareholding resolved,
then there'll probably be some more time to tie up other issues
like headquarters, weights on the board and other matters," said
a senior diplomat following the negotiations.
"Otherwise, Enders and King have signalled they will pull
the plug on the 10th".
Officials failed to resolve incompatible demands over state
involvement in a video conference on Friday. EADS and BAE denied
German reports that the talks had collapsed.
There were few signs of progress after private contacts at
the weekend. Plans have already been drawn up to request extra
negotiating time, but the companies are unwilling to release
pressure by deploying them until they have some real political
progress to show UK regulators, banking sources said.
People close to the talks said the UK appeared most open to
the deal, Germany was the least keen and France wanted more time
to think it over. Yet as problems pile up, all sides have moved
to deflect the responsibility in case the talks break down.
Despite the negative atmosphere left by Friday's press
briefings, industry experts say it is too early to say whether
the world's largest defence merger will happen but note the
parties are used to negotiating down to the wire or even beyond.
EADS was created from a merger in 2000 only after talks
between France and Germany broke down and the plan collapsed,
bringing the two sides back together to negotiate a complex
shareholder pact limiting the role of the French state.
However, those negotiations were held in secrecy while a
blizzard of publicity surrounding the latest talks has brought
pressure from investors and unleashed new negotiating demands.
BAE's top shareholder Invesco Perpetual blasted the proposed
deal on Monday, citing state interference, poor terms and a lack
of strategic rationale. The investment company, which has 13
percent of BAE, is reported to have clashed in private with BAE
leaders as soon as the talks surfaced last month.
BAE shares dipped 1 percent. EADS was fractionally lower.
In order to improve the chances of winning approval in the
U.S., Britain wants France to commit in writing to forego any
future increases in its shareholding, which would start out at 9
percent under the proposed 60:40 split between EADS and BAE.
France has told partners it has no intention of upping its
stake but is unwilling to surrender sovereignty over future
industrial policy. Barring a wider escalation of the problems
surrounding the deal, sources briefed on the discussions said a
formula would probably be found to get round the impasse.
Government leaders are being kept in the loop on the
negotiations but there are so far no plans for direct
intervention or a three-way summit, officials said.
Britain left open the door on Sunday to a German state
participation in EADS-BAE in a move towards addressing Berlin's
demands for equal treatment with France in the new group.
Germany has renewed demands to have the headquarters and is
involved in potentially tough negotiations with EADS about job
guarantees and company conditions on continued defence orders.
"Whether this can be resolved depends on whether everyone
wants this to work", the diplomat said.
The United States is seen likely to want assurances that a
system of co-operation in EADS between French and German
governments or their industrial allies will not be resurrected.
Any risk of foreign state control is crucial as Washington
considers whether to impose new conditions on the way BAE
operates in the U.S. - a red line for the company and the UK.
Negotiators are keen to keep respective state shareholdings
under 10 percent to avoid stirring U.S. concerns over possible
foreign influence on its defence sector, an issue seen certain
to be highlighted by Boeing and other U.S. rivals.
U.S. experts said this weekend anything over that figure
would undermine the chances of U.S. approval.