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French and German HQ row hits BAE, EADS tie

The proposed £30bn merger between BAE Systems and EADS ran into further headwinds yesterday as France and Germany locked horns over the location of the combined group's aerospace headquarters.

Just three months ago, the incoming EADS chief executive Tom Enders, pictured, switched the aerospace company's head office from its dual location of Munich and Paris to a site in Toulouse, France, where the company's key Airbus planemaking business is based.

Now, Germany is understood to be pushing for the EADS part of the combined group to be headquartered in Ottobrunn, just outside Munich after the merger.

The latest disagreement, which has been brewing for some time, adds a significant hurdle to a mounting set of obstacles that need to be overcome by next Wednesday's Takeover Panel deadline for BAE and EADS to agree terms.

Other issues to be resolved are the extent of control the UK, French and German governments will exert over the resulting entity and how to preserve the strong relationship BAE Systems enjoys with the US government – a key customer, which is likely to be more wary of dealing with companies with French and German government ties.

There are also concerns about the mooted financial terms of the deal. Lagardère, the French conglomerate with a 7.5 per cent share in EADS, said on Monday that the proposed 60:40 ownership split, which would hand EADS investors 60 per cent of the combined group, was insufficient. "Lagardère calls on the management of EADS to undertake, without delay, the indispensable re-examination of the project to combine EADS and BAE, to better take into account the interest of all the French controlling shareholders of EADS," a spokesman said.

In a rare show of support, Qatar Airways backed the deal. Akbar al-Baker, the chief executive of the Gulf carrier, a key customer of EADS' Airbus aircraft, said the combined entity would make better products

BAE's defence business will continue to be based in London under the proposed merger terms, with a separate US board for security reasons.