Talks over a merger between EADS and BAE Systems were blocked on Wednesday a few hours ahead of a deadline and only intervention by the French, German and British leaders could break the deadlock, sources familiar with the negotiations said.
EADS and BAE have until 1600 GMT on Wednesday to ask for an extension to their talks to create the world's biggest arms and aerospace group and can only do so if there has been significant progress in negotiations.
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One source said that the deadlock would only be broken if German Chancellor Angela Merkel, French President Francois Hollande and British Prime Minister David Cameron signaled their approval for more talks.
"Things remain blocked. There has been no movement since last night" the source said.
Britain and France have made several steps to agree broad terms of the merger proposal, but Merkel is still opposed to the deal, several sources involved in the talks have said.
It was not clear whether Cameron, Hollande and Merkel had been in touch over the deal. Cameron was speaking at his party's conference in the British city of Birmingham on Wednesday morning.
If there is a breakthrough, BAE will probably ask for the maximum extension of 28 days for the talks, in order to clear a logjam between the three governments which are divided over state shareholdings in the merged company.
With no intervention, the companies were likely to announce that they will not seek an extension, effectively calling the merger talks to a halt, at least for the foreseeable future.
(Writing By Jane Barrett, editing by Peter Millership)