BIRMINGHAM, England Britain will block the proposed $45 billion merger between EADS EAD.PA and BAE Systems (BAES.L) if key "red line" priorities are not met, defense minister Philip Hammond said on Sunday, just three days before a deadline for detailing the deal.
Tensions over the supermerger have spilled into the open in recent days as France, Britain and Germany jockey over the role of the state in what would be the world's largest aerospace and arms group.
"We want to see this company ... prospering as a commercial business, focused on doing things that are right for the business, not beholden to or controlled by any one government," Hammond told BBC radio.
"It is not necessary to have no French or German government interest in the company. It is necessary to reduce that stake below the level at which it can control or direct the way the company acts," he said.
EADS and BAE announced plans for a merger last month, but their efforts have become snagged on differences over control between France and Germany, while there are also political concerns about jobs.
"We have made very clear that we do have red lines around the BAE-EADS merger and that if they can't be satisfied then we will use our special share to veto the deal," Hammond said, referring to Britain's so-called "golden share" in BAE that gives it the power to block a transaction involving the company.
Britain would judge the deal against how it protected the country's security and jobs, added finance minister George Osborne.
"Our priorities are of course the national security of the United Kingdom, second: jobs and investment in the UK," Osborne told Sky television.
EADS is controlled by a pact between the French state and two core industrial shareholders, France's Lagardere and German carmaker Daimler. The trio collectively owns 45 percent.
France wants to keep a stake but will not rule out adding more, while Germany wants to match France's role.
Investors in both companies are also concerned about the level of political influence within the combined group, fearing it could hamper its chances of winning business from other countries.
EADS chief executive Tom Enders sees the tie-up as a chance to reduce government influence within a more commercial business.
Enders and his counterpart at BAE Systems, Ian King, have vowed that the new company would have normal "governance structures".
A person familiar with the negotiations said one of the points in dispute was where the new group would be based.
The German government would like an important part of the company, or indeed possibly its headquarters, to be based in Germany, the source said, adding: "It's like a round of collective bargaining".
Time is running out before a UK regulatory deadline of October 10 for a blueprint of the deal, which affects national security interests on both sides of the Atlantic.
(Reporting by Guy Faulconbridge, additional reporting by Gernot Heller and Tim Castle, Editing by Matt Falloon, Ron Askew and Mark Potter.)