EADS and BAE in final hours of talks over possible merger

BAE and EADS entered into their final day of merger talks Tuesday with a decision expected Wednesday.

The two firms have been in discussions since early September about the possible merger — a deal that would create the largest defence and aerospace company in the world.

The Guardian said that the two companies, which are primarily controlled by France, Britain and the UK, will either decide to ask those governments for a two-week extension on negotiations, end negotiations altogether or decide to merge.

The most recent reports from Reuters suggest that the British and French governments had reached a tentative deal, yet the German government had not yet agreed to the terms.

"We are surprised to see the reports from Berlin," said an EADS spokesman, after reports from the German news agency DPA said Germany had not accepted the agreement, BBC News reported.

"The two companies will discuss the situation and possible steps forward this afternoon."

Indeed, the Guardian reported that its sources said that Berlin was being "particularly difficult."

Germany's tough negotiating may be due to its demand that the new company's offices be in Munich, or possibly over the percentage of shares each country would own in the firm.

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EADS is currently based in Leiden, the Netherlands, while BAE is based in London.

Part of the negotiations are over how much each country would own, with nine percent as a number being posited in media reports.

To add to worries over the deal, 45 conservative MPs in Britain wrote the prime minister to voice their concerns last week.

They believe that the UK's defense industry may be being handed off to a foreign company, which will not have the UK's strategic interests in mind.

The complex and highly sensitive deal may, however, be undone by shareholders in the company rather than governments.

BAE's largest shareholder, Invesco Ltd., questioned the logic of the deal Monday and listed eight reasons both financial and strategic as to why the merger may not be a good idea.

Bloomberg reported that up to 30 percent of UK shareholders in BAE are worried about the deal.

European Aeronautic, Defence & Space Co. was formed in 2000 through the merger of Aerospatiale Matra of France, DaimlerChrysler Aerospace in Germany and Construcciones Aeronauticas in Spain.

BAE Systems Plc. was created in 1999 through a merger between British Aerospace and Marconi Electronic Systems and is now the third largest defence contractor in the world.