BAE shares fall on worries over hurdles to EADS merger With so many stakeholders with conflicting interests involved at both companies, the final outcome may not be the emergence of a pan-European A&D giant to rival Boeing within the sector. The companies will require the approval of regulatory bodies in key customer countries like France, Germany, the UK, US and Saudi Arabia. Fitch said. Considering the complexity and security sensitivity of some defence contracts, this may prove to be a long and arduous process, potentially involving the ring-fencing or outright sale of some assets. Shareholder approval may also be hard to obtain because this will sometimes involve governments that are also defence customers of the two companies. Can BAE and EADS merger succeed? Investec analyst Andrew Gollan advised clients to "sell" BAE shares. "Given that yesterday's price movements weight the combined market caps similar to the proposed dual-listed structure (EADS 60pc-BAE 40pc), the market is effectively pricing the merger terms efficiently," he wrote in a note. Hence, simplistically, bid-related upside to the BAE share price is limited in our view. The German government, which along with the French Government each own a 22.5pc a stake in EADS, said it had not yet approved the deal and was looking into all the relevant issues related to a merger. Spain owns 5.5pc. The British government, which has a so-called "golden share" in BAE that allows it to veto deals that are seen to put the public interest at risk, warned that any deal would need to ensure national interests were "properly protected." A spokesman said the Government was working alongside the two defence giants to handle British interests, including security information, jobs and manufacturing. Lagardere, the French media-to-aerospace group which controls 7.5pc of the European aerospace and defence company, also said it would closely examine any tie-up before accepting a deal. "In the light of available information, the Lagardère group intends to ensure that all consequences associated with the proposed EADS-BAE Systems merger are taken into consideration in determining the terms and conditions of the proposed transaction before it consents to the deal," Lagardere said in a statement released on Thursday. Lagardere group stressed no proposed transaction had yet been submitted for approval. Germany's Daimler, a part-owner of EADS, said it could sell out of the group if the tie-up went through. "Since the planned transaction would also be linked to a possible dissolution of the (Franco-German) Shareholder Pact, all options would be open to us in principle - including the possibility of selling our stake on the open market," Daimler said. BAE Systems and EADS said on Wednesday they were in advanced merger talks. The two companies already have major links through the MBDA missiles business and projects including the Eurofighter Typhoon jet. Combined, they would be the largest industrial employer in Britain, with almost 60,000 workers, and the second-biggest aerospace company in the world after Boeing. The US defence department, however, said it had not been properly informed about the deal, which will need approval from the British government. The "merger" will see EADS take advantage of BAE's strength in the US market, where the government is one of its biggest customers. At the same time, it will allow BAE to diversify its earnings from its current defence projects to commercial aircraft and space satellites, at a time when the Western defence market is shrinking. "The potential combination would create a world-class international aerospace, defence and security group with substantial centres of manufacturing and technology excellence in France, Germany, Spain, the UK and the USA," BAE said. Under the merger proposals, BAE shareholders would get 40pc of the new company, with a 50:50 mix of board seats. Both Tom Enders, chief executive of EADS, and Ian King, head of BAE, would be expected to stay on. However, BAE said it had yet to come to an agreement about who would take the top job, or where the merged company's headquarters would be. EADS has agreed to pay its shareholders a £200m windfall in order to better align itself with BAE's dividend policy. Some shareholders in BAE have raised questions about whether the deal was a true merger or a takeover by the continental company. One top 20 shareholder said: "It is not yet clear whether this is the best outcome for BAE shareholders, who may be better off with an independent company. Even if this is billed as a merger, we have recently learnt that there is no such thing. EADS has had a patchy record, so we really need to know who is going to lead the company and what the strategy is. Fund manager Neil Woodford, of Invesco, which is BAE's biggest investor, holding 13pc, said it was "still early days" and that he would need more time to assess the deal being negotiated. The British government warned that any deal would need to ensure national interests were "properly protected." The Government has a so-called "golden share" in BAE, meaning it can veto deals that are seen to put the public interest at risk. "We are aware of this proposal," he said. However, given the nature of the companies" activities, we would of course want to ensure that the UK's public interest was properly protected."