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UK threatens to veto BAE-EADS merger

LONDON -- The French and German governments must reduce their stakes in defense company EADS NV for the U.K. to allow a proposed merger with BAE Systems PLC to go ahead, Britain's defense secretary warned Sunday.

Philip Hammond said Britain would veto the mega-merger of the aeronautics and defense companies if this requirement wasn't satisfied.

"It is not, I think, necessary to have no French or German government interest in the company," Hammond told the BBC in an interview. "It is necessary to reduce that stake below the level at which it can control or direct the way the company acts."

The deal would create a global aerospace and defense company with combined sales of more than (EURO)70 billion ($90.3 billion) and more than 220,000 employees.

"We want to see this company . prospering as a commercial business focused on doing the things that are right for the business, not being beholden to or controlled by any one government," Hammond added.

EADS, the parent of aircraft maker Airbus, is jointly French and German owned, though it is incorporated in the Netherlands.

The French government owns 15 percent and French media company Lagardere has 7.5 percent. Germany's government does not have direct stakes in EADS, but has influence through auto maker Daimler, which holds a 22.5 percent stake.

The firms have until Wednesday to say whether they want to continue with the talks.

On Friday, 45 British lawmakers wrote to Prime Minister David Cameron, warning that the proposed merger would hand control of much of the British defense industry to a company that would not safeguard the country's interests.

EADS, one of Europe's biggest companies, is also parent to helicopter maker Eurocopter, satellite builder Astrium and defense electronics contractor Cassidian.

The proposed merger is fraught with difficulties, not least because France and Germany have been fighting for an equal say in EADS.

Airbus and EADS have long been rivals to U.S.-based Boeing Co. in civil and defense aviation. The proposed deal is a clear shot at catching up to Boeing's defense business - and passing it.

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