EADS/BAE merger demands erupt as talks intensify

EADS and BAE Systems battled to save their $45 billion merger plan from the crossfire of competing interests on Monday as governments and shareholders staked out positions in talks aimed at creating the world's biggest arms firm.

Arnaud Lagardere, the leading French industrial shareholder of Airbus parent EADS, threw an unexpected spanner into the plans by demanding the financial terms be reviewed, setting off a frenzy of briefings and counter-briefings from all sides.

"Despite the industrial and strategic potential attributed to it, this plan has not yet demonstrated that it was creating value for EADS," Lagardere's media firm said.

The comments increased pressure on EADS Chief Executive Tom Enders and BAE Systems' counterpart Ian King, hours after they urged investors to back a deal complicated by demands from European governments and volatile share prices.

In an article published by three European newspapers, Enders and King dismissed what they termed "myths and misconceptions" about the plan, which has split the industry and politicians ahead of an Oct. 10 deadline for terms to be presented.

EADS Chief Executive Tom Enders embarked on shuttle diplomacy, meeting Lagardere in Paris and senior UK officials in London, where he had a previously scheduled speaking engagement.

Speaking to a packed audience of engineers swelled by media covering the deal, Enders acknowledged Lagardere's concerns.

"Mr Lagardere put out a press release that I wouldn't say was unfriendly, but was just stating the obvious, that he wants to see a beneficial return from this," Enders said.

He said the next 10 days would be crucial for the deal.

"We intend to come to a conclusion very soon. Investors are reacting very badly ... We cannot go on much longer," he told an audience at the Royal Academy of Engineering in London.

EADS shares have shed more than 4 billion euros ($5.2 billion) in value since news of the talks broke last month due to investors' misgivings. That means Lagardere's 7.5 percent stake is now worth 300 million euros less than it was.

EADS and BAE shares rose around 1 percent on Monday.

Experts on Europe's fragmented defence industry said Lagardere's criticisms and a volley of negative remarks from Germany and elsewhere seemed designed to protect negotiating positions ahead of arm-twisting talks in coming days.

"It is like trade unions laying out their maximum demands before a pay negotiation," a person close to the talks said.

"LEAKS CAN RUIN EVERYTHING"

German Defence Minister Thomas de Maiziere expressed concerns about a rise of potentially harmful rhetoric.

"We don't want to add further fuel to the debate ... with more speculation. All the information leaks can lead to a result, but they can also ruin everything.

"The ministers won't be party to this. Therefore, you can't make any assumptions about our positions. What you can assume is that we will find a common position. But it doesn't only depend on us."

A steep drop in global defence spending has prompted EADS and BAE to re-examine a tie-up to create a European giant to compete with U.S. rivals such as Boeing.

Lagardere, the French government and German automaker Daimler are part of a complex shareholder pact at EADS, which was formed in 2000 from aerospace companies in Germany, France and Spain. Under the pact, Lagardere represents the combined French stake.

EADS and BAE have promised a "normalised" corporate governance structure under any merger, something considered essential to winning backing from UK and U.S. governments.

In their article, the CEOs touted the benefits of the deal but made scant reference to core shareholders who can block it, and Lagardere's statement served to remind the company and French government its voice must be heard in any compromise.

Lagardere has said it wants to sell its 7.5 percent stake in EADS and will be keen to get the best valuation in any deal. It called the current proposed terms, which would give EADS shareholders 60 percent of a new company, "unsatisfactory".

"GOLDEN SHARE"

Any deal would require agreement on the rights and/or ownership role of the British, German and French governments. Jobs are also an important component of the talks.

A source in Germany who is privy to the negotiations said it was more likely that the deal would collapse than that the three governments would reconcile their interests and reach agreement.

A UK defence ministry source said Britain would use a "golden share" in BAE to block a merger unless the new group's defence business is based in the UK and has a British CEO.

A source close to Daimler said the company was keen for the matter to be resolved before next week's deadline.

German magazine Der Spiegel said on Sunday that France and Germany had agreed that each should hold a 9 percent diluted stake in the merged entity, but sources involved in the negotiations denied this.