Talks on a $45 billion merger between EADS and BAE Systems collapsed on Wednesday after the governments of France, Germany and Britain failed to reach agreement over a deal to create the world's largest aerospace and arms group.
Britain's BAE and the Franco-German EADS had been working towards a 1600 GMT (1200 EDT) deadline to either walk away from the talks or seek an extension.
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In a statement, BAE said it had become clear that the interests of the governments could not be adequately reconciled with each other or with the objectives that BAE and EADS established for the merger.
The governments had failed to reach agreement over issues such as where the headquarters should be based and how much the French and German governments should own.
"BAE Systems and EADS have therefore decided it is in the best interests of their companies and shareholders to terminate the discussions and to continue to focus on delivering their respective strategies," it said.
BAE said the two groups had agreed the structure of the deal in terms of commercial, legal, management and governance arrangements but that they had never got to the point where they could explain it to shareholders.
"We are obviously disappointed that we were unable to reach an acceptable agreement," BAE Chief Executive Ian King said.
"However, our business remains strong and financially robust. We remain committed to delivering total shareholder value and look to the future with confidence."
EADS Chief Executive Tom Enders said the Airbus owner would continue on its "international growth path" and said its shareholders could continue to expect "profitable growth, excellent liquidity and program execution based on a strong order book".
(Reporting by Kate Holton; editing by Jason Neely)