French German and British shareholders wrangle ahead of EADS BAE merger deadline

Fund manager Invesco Perpetual, which is the biggest single shareholder in the British arms manufacturing company, BAE Systems, warned on Monday that it had "significant reservations" over a merger with the European aerospace giant EADS.

Reuters/Tobias Schwarz

In a strongly-worded statement Invesco said it believed the merger would damage its “privileged position in the United States defence market”, and declared that it had been “unable to identify any corresponding benefits to offset this”.

The news came the day after British defence minister Philip Hammond declared that Britain could use its "golden share" in BAE to block the merger, unless France and Germany limited their stakes in the future entity.

He said he did not want either country to have a stake big enough “to control or direct the way the company acts.”

Britain is also concerned that any government shareholdings above 18 per cent would make the deal unacceptable to the United States, which is famously wary of state-owned defence contractors.

Washington is the world’s biggest defence market, and would anyway have to review the deal as BAE has a large American subsidiary.

Paris, Berlin and London all have the right to veto any proposed merger, and there are other difficulties before any deal could be agreed.

Germany wants the right to buy a nine per cent stake in the new group to maintain parity with France, but Britain will only accept this with a written guarantee that the French state will not later buy shares held by the French conglomerate Lagardère.

France holds a 15 per cent share of EADS which would be reduced to nine per cent in the new entity.

Paris has said it does not plan to increase its stake in the new group but is refusing to give this in writing, while Lagardère has stated its intention to sell its 7.5 per cent stake in EADS once the new Airbus A350 airliner is launched, around 3015.

Germany and France are also wrangling over the location of the headquarters: Germany wants Munich, France is pushing Paris.

EADS and BAE have until Wednesday to make a formal statement to say that the proposed deal is going ahead, being abandoned, or to request a delay.

A merger would create the world’s biggest aerospace and arms group worth 35 billion euros, rivalling Boeing in the US.