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EADS says continuing BAE merger talks with governments

Visitors look at aircraft models at the EADS booth during the ILA Berlin Air Show in Selchow near Schoenefeld south of Berlin, September 13,
Visitors look at aircraft models at the EADS booth during the ILA Berlin Air Show in Selchow near Schoenefeld south of Berlin, September 13,

By Gernot Heller

BERLIN (Reuters) - EADS is continuing "constructive talks" with governments over its proposed $45 billion merger deal with BAE Systems and remains convinced that it is an excellent deal for Europe, a spokesman said on Saturday.

Tensions over the proposed supermerger spilled into the open on Friday, casting doubt on a rapidly approaching deadline as France, Britain and Germany jockeyed over the role of the state in the world's largest aerospace and arms group.

But EADS has been at pains to stress the merger proposal had not collapsed.

"We are continuing our constructive talks with the governments," the EADS spokesman said. "We remain convinced that we have made an excellent offer for Europe."

While both firms want a minimum government presence, mainly to protect BAE's defense interests in the United States, the deal has sparked a three-way political logjam.

France wants to keep a stake but will not rule out adding more, Germany wants to match France's role to avoid being left aside by Europe's other main powers, and Britain wants to cap state involvement, several people familiar with the talks said.

Time is running out before a UK stock market deadline of October 10 for a blueprint of the deal, which affects national security interests on both sides of the Atlantic.

A French government source has said the deadline could be extended by 28 days, something the companies are so far reluctant to do in the absence of concrete progress.

Senior aides to the leaders of all three countries held a video conference on Friday and "put everything on the table to see if we can go forward", the source added.

EADS and BAE denied a German report that this had resulted in deadlock and that the merger proposal had collapsed.

A French parliamentary source said last week that Hollande was ready to contact Merkel on the issue but there were no immediate signs of any planned contact.

In a sign of the sensitivities surrounding the deal in Britain, 45 lawmakers from the ruling Conservative Party sent a letter to Prime Minister David Cameron on Friday to say they would only back the merger if France, Spain and Germany got rid of their stakes in the new company.

"Such is the importance of the proposed EADS/BAE merger to the UK that it should be a condition of the merger being approved by HM Government that the state owned shareholdings are fully divested," said the letter, seen by Reuters.

The members of parliament said they would also need to see clear safeguards provided to protect British manufacturing and jobs before the government gives the green light to the deal.

"Without such changes it seems it is EADS and its government shareholders who have everything to gain while the British armed forces, UK manufacturing and BAE have everything to lose," the letter said.

(Additional reporting by Tim Hepher and Kate Holton; Writing by Christoph Steitz and Sarah Marsh; Editing by Catherine Evans)

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