Shares in the defence giant BAE Systems and Airbus-owner EADS tumbled yesterday as concerns grew over the obstacles ahead of their proposed £30bn tie-up.
Investors and analysts were divided over whether Wednesday's shock announcement that the two were in advanced talks to create the world's biggest aerospace and defence firm would be blocked by regulators or governments.
There were also questions raised over whether the rationale behind the deal, which will see BAE shareholders own 40 per cent of the combined group and EADS investors the balance, made sense.
The proposal would water down France, Germany and Spain's complicated shareholdings in EADS, which sees the pan-European group so often gripped by political wrangling over issues such as the balance of nationalities sitting on the board.
Yesterday, the German government said it has yet to agree to the deal, and the French media group Lagardère, which owns 7.5 per cent of EADS as part of a deal to ensure balance between the nations' shareholdings, confirmed it had yet to offer its "consent" to the proposal.
One of the greatest fears is that the US will object to the tie-up. The strategic thinking behind the merger is that the British firm's strength in the US defence market gives the pan-European group access to a market in which it has struggled.
With a US election being fought against a backdrop of high unemployment, and a combined group that closely resembled the structure of Chicago-based Boeing, it was thought that the Pentagon might object to stronger European competition. However, Boeing boss Jim McNerney, who has a turbulent history fighting EADS and Airbus over competition issues, said the tie-up did not "fundamentally" threaten his company.
The EADS investor Argonaut Capital Partners criticised the deal. Founding partner Barry Norris said Airbus's growth prospects were superior to those of BAE Systems, which largely shuns civil aviation for defence contracts at a time when military budgets are being slashed.
By the close, BAE shares had fallen 7 per cent and EADS 10 per cent.