Investors in EADS and BAE Systems are increasingly frustrated at the political wrangling over their proposed, $45-billion merger, concerned they are being frozen out of the decision-making and are unable to run their numbers.
Since news leaked out about talks between EADS and BAE last month, fund managers say they have been given very little information about the merger and are still scratching their heads as to its value.
"With the cost savings, they've not come out and said it'll be a billion or half a billion. That's where I can't sit down and run my spreadsheet and say whether that's really good value," said a fund manager from one of BAE's top shareholders.
"If they want backing for this, they're going to have to give us more detail."
EADS and BAE have been discussing a merger that would help insulate EADS from the ups and downs of the aerospace cycle and give BAE investors a more diverse business as governments around the world cut their defense budgets.
Negotiations have been held up by the French, German and British governments wrangling over the extent of their influence in the new company. Under British takeover rules, EADS and BAE have until close of business on Wednesday to make enough progress to warrant extending the talks.
While the smoothing of business cycles might make sense from a corporate strategy point of view, investors have put money in the stocks for other reasons that may now become obsolete.
BAE, with its long-term contracts and cash flow, has been a healthy dividend stock, paying out just over half its net income and giving a dividend yield of 5.9 percent based on 2011 profit.
EADS pays out just over a third and has a dividend yield of 2.2 percent, but it has been a profitable growth stock with its shares up 39 percent in the year before news of the talks came out on September 12. BAE stock was up just over 20 percent.
"If this merger were to happen, they would have to have a sustainable dividend policy of a yield of 4-4.5 percent - which would be a big increase for EADS - because without that you're probably not going to take any of the UK shareholders with you," said one of BAE's top 30 investors, who asked not to be named.
While some fret about the dividend, others focus on growth. EADS is benefiting from an upswing in civil aerospace thanks to growth in emerging markets and a push for more fuel-efficient aircraft; BAE, on the other hand, is suffering from cuts in defense budgets among its government customers.
According to Starmine, which weights analysts' forecasts depending on their past accuracy, EADS should book revenues of 54.5 billion euros this year, up 11 percent from 2011, with net profit rising about 48 percent to 1.5 billion.
BAE revenues, on the other hand, are seen flat at 19 billion pounds with net profit up about 5 percent to 1.3 billion pounds.
EADS shares trade at a forward price to earnings ratio of 10.79 times while, on a similar basis, BAE trades at a p/e of 8.11.
"At the moment, EADS has a lot of potential but is not an easy company to manage. It has a lot of civil aerospace projects in the pipeline that are very complex and will take a lot of management time," said Barry Norris, chief investment officer at Argonaut Capital Partners, one of EADS' top 40 investors.
"To add this extra layer of complexity by merging two defense businesses is something that EADS just doesn't need."
(Additional reporting by Chris Vellacott and Sinead Cruise; Editing by Alastair Macdonald)