European Aerospace Talks Get Wary Welcome PARIS - European governments and shareholders reacted with caution Thursday to news that the region's two largest aerospace and military companies were in advanced discussions to create a $49 billion behemoth to rival the likes of Lockheed Martin and Boeing. Following the surprise announcement late Wednesday of the merger talks between the French-German company European Aeronautic Defense & Space and BAE Systems of Britain, many analysts acknowledged the significant competitive advantages a combination of the two companies could have, pairing a complementary set of assets in the civil and military aeronautics sectors. But many worried that the proposed ownership structure would be overly complex, with control split among strategic shareholders, including governments, in no fewer than five countries. "There is an immense amount of uncertainty about the precise mechanics of this," said Sash Tusa, an aerospace analyst at Echelon Research & Advisory in London. "There are lot of players with an effective veto" of a deal. Shares in EADS closed 10.2 percent lower in Paris on Thursday, while BAE Systems slid 7.3 percent in London. The companies outlined Wednesday the terms of a deal that would create a dual-listed concern that would be 60 percent owned by EADS shareholders and 40 percent by BAE investors. The two operating divisions would be managed by a single team in a structure similar to that of other cross-border European giants like Unilever and Royal Dutch Shell. Certain parts of each company's national security operations would be "ring-fenced" to limit the access of executives at one company to sensitive technologies owned by the other, a common practice for foreign contractors operating in the United States. The company would have a market value of almost $50 billion, annual revenue of more than $90 billion and a staff of around 220,000 people worldwide. By joining forces, EADS and BAE hope to create a corporation whose activities are evenly split between the passenger jet market - which is growing rapidly but volatile - and the military market that, while more stable in terms of revenue, has more limited growth potential as large European countries and the United States cut back on military spending. Geographically, the combined company's sales would be well diversified, with Europe accounting for 40 percent; North America, 21 percent; Asia, 22 percent; and the Middle East, 11 percent. Still, analysts said the combination could face significant hurdles, many of them political. Chief among those would be persuading EADS's strategic French, German and Spanish shareholders, which hold just over 50 percent of the stock, to accept a dilution of their influence. Since EADS's creation in 2000 from a combination of French, German and Spanish aerospace assets, its management has chafed at the frequent attempts by government stakeholders to influence decisions at the company. France and Germany each control 22.5 percent of EADS and have the right to appoint an equal number of their citizens to the company's 11-member board. German interests in EADS are represented by Daimler, the automaker, and a consortium of private- and public-sector banks. A French government holding company owns a 15 percent stake and Lagardère, a French media conglomerate, holds 7.5 percent. The Spanish government controls a 5.45 percent stake. The remaining shares are held by the public. A merger would effectively put an end to that decade-old division of control between the French and Germans, replacing it with a system of "golden shares" that would give the governments of France, Germany and Britain a veto in the new company only in the case of a hostile takeover attempt or in transactions involving sensitive national security assets. French, German and British officials were first informed about the proposed merger and changes to the ownership structure by top EADS executives in July, said a person who was briefed about the meetings, but who spoke on condition of anonymity because they were confidential.