Defense firms weigh time extension in stalled talks over EADS/BAE merger

Defense contractors EADS and BAE Systems are considering an extension to merger talks ahead of a deadline Wednesday as an agreement to satisfy the three European governments involved in the elusive deal.

British Defense Minister Philip Hammond said Tuesday that he expects the European defense firms to make an announcement before the London stock market opens Wednesday over whether they will seek more time to negotiate the $45 billion deal, according to Reuters.

But Reuters reported later Tuesday that the talks had hit a roadblock over Germany’s reluctance to sign onto an agreement between Britain and France over state-owned shares, citing an unnamed source saying that a joint statement Wednesday morning might not be forthcoming.

To proceed, the British, French and German governments must agree to the terms of the merger, and the governments have yet to find sufficient common ground with the two companies. Looming in the background is the United States, which also must ultimately sign off on the deal.

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"They will make an announcement, as I understand it, before the London Stock Exchange opens tomorrow," Hammond told reporters at the NATO meeting of defense ministers in Brussels, where he discussed the merger with his French, German and U.S. counterparts on the sidelines of the meeting, according to Reuters.

"I think the companies now have a very clear understanding of the positions and the red lines of the governments involved," Hammond said.

Hammond said the two companies were meeting Tuesday to decide whether they were close enough to seek an extension of time before a British deadline for the merger hits Wednesday.

There have been conflicts over how much of a stake the three governments should each have in the combined company, which would be the largest defense and aerospace firm in the world. Britain owns a stake in BAE, and France and Germany have direct and indirect stakes in EADS.

Part of the tension over the role European governments would play in the combined company are tied to U.S. security concerns, as BAE has a special security agreement with the U.S. providing access to sensitive project that the company does not want to lose.

So far, U.S. lawmakers have remained quiet over the potential merger as the European governments have argued over the deal.