BAE Systems and EADS in last-ditch talks to salvage deal BAE Systems and EADS merger - It is understood that if an extension to the deadline is sought, it will be for between seven and 14 days. Photograph: Chris Ipson/PA BAE Systems and EADS are fighting to keep their proposed €35bn (£28bn) merger alive as the UK, German and French governments wrangled over the deal before a crucial 5pm deadline on Wednesday. The UK defence secretary, Philip Hammond, indicated that the three powers - any of which could veto the deal - had outlined their positions on the merger after protracted talks, but negotiations were expected to go to the wire amid a last minute push to achieve consensus. Speaking to Reuters on the fringe of a Nato defence ministers' meeting in Brussels, Hammond said: "I think the companies now have a very clear understanding of the positions and the red lines of the governments involved." However it is understood government-level talks were continuing last night. A source with knowledge of talks between the UK, French and German governments said Berlin was being "particularly difficult." BAE and EADS face a deadline of 5pm on Wednesday whether to seek an extension from the Takeover Panel for their discussions, outline the terms of their deal or abandon talks. Another source close to the negotiations said an extension or failure were the most likely results. The source added: "It is unlikely that a deal will be announced. It is either a case of stating that progress cannot be made, or that there will be an extension. An outburst against the transaction this week by BAE's largest shareholder, Invesco Perpetual, is not being viewed as an immediate deal breaker. "The key thing is to resolve the politics," said the source. BAE declined to comment but EADS said the BAE chief executive, Ian King, and his EADS counterpart, Tom Enders, had discussed progress on Tuesday, followed by board meetings expected to last into the evening. "Ian King and Tom Enders will discuss the situation and then decide, jointly with the respective company boards, the way forward," said EADS. It is understood that if an extension is sought, it will be for between seven and 14 days. Last week Germany asked for the combined company's headquarters to be based in Munich, having sought assurances that the French state shareholding in the new business would be no larger than 9% - the same as Germany's. The source familiar with the government-level talks said that France and the UK appeared to have reached an accord, thought to relate to guarantees over state shareholdings in the merged entity. The source added: "The position is that the French and the British are pretty closely aligned, but with the Germans there is another round of negotiations to be done. The Germans feel pretty strongly about this. The UK government is concerned that France's stake could be increased by acquiring the 7.5% shareholding in EADS owned by Lagardère, a French media conglomerate, although that could be mitigated by putting a limit on overall state shareholdings in the combined group. Speaking at the Nato summit, the French defence minister, Jean-Yves le Drian, said: "We had made a lot of progress, I think, but have we progressed enough? That is up to those who initiated the project to say. EADS said on Tuesday morning it was "surprised" to see reports from Germany that the deal had collapsed. However, Berlin is keen to establish parity with France in the combined company and would be unlikely to accept a combined state shareholding limit if that allowed the Élysée to own a larger stake, provided an overall ceiling is not breached. Germany's interest in EADS is represented by the 22.35% stake owned by Daimler, the car manufacturer, while the French state and Lagardère also own a combined 22.35%. The British government's interest in BAE is represented by a golden share that allows Downing Street to block a foreign takeover of the group. However, the biggest barrier to BAE pulling off the deal is located elsewhere on its share register after Invesco, which owns 13.3% of the group, issued a detailed critique of the deal on Monday. Warning that it did not see the strategic rationale for the deal, it said the transaction could jeopardise BAE's US business, depress dividend payments and create a company driven by politics rather than shareholder value. "Other than diversification, which investors can achieve for themselves more cheaply and simply, Invesco does not understand the strategic logic for the proposed combination," the fund management firm said.