Government ready to reject BAE/EADS merger

The British Government is ready to use its "golden share" in BAE Systems to veto the proposed £30bn merger with EADS if the terms such as job guarantees are not right, according to Ministry of Defence sources yesterday.

The UK is believed to be unhappy at the idea that France and Germany could own more than a 9 per cent stake in such a deal. It also wants the defence business to be based in Britain, with a British chief executive.

Amid growing signs that the German, French and British governments are struggling to reach agreement on key details, a key French shareholder also said the terms of the deal were "unsatisfactory" yesterday and called on the European aerospace giant to re-examine the project.

A spokesman for Lagardère, the French conglomerate which owns 7.5 per cent of EADS, said: "Despite the industrial and strategic potential attributed to it, this plan has not yet demonstrated that it was creating value for EADS. Lagardère considers that the merger conditions are currently unsatisfactory."

"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," the spokesman added.

BAE and EADS plan to create the world's biggest aerospace and defence group, merging the Airbus aircraft maker with Europe's largest defence company.