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UPDATE 1-'Progress' on EADS-BAE merger as deadline nears

By Tim Hepher and Adrian Croft

PARIS/BRUSSELS, Oct 9 (Reuters) - The boards of EADS

and BAE Systems prepared to weigh the results of weeks of tough political negotiations over a $45 billion merger on Tuesday with momentum building for an extension to a Wednesday deadline for the deal.

Several sources briefed on the negotiations said France and Britain had narrowed differences over the wording of key guarantees on state shareholdings, raising the prospect that the companies will buy more time to complete the complex deal.

"There has been some progress," a source close to the talks said, asking not to be identified.

But a French government source said the country had not changed its official opposition to a 10 percent cap on its future shareholding in the group, which would be the world's largest aerospace and arms conglomerate with 220,000 employees.

Differences between Britain, France and Germany over state control, jobs and investment have threatened to derail the talks, which have also drawn criticism from a number of investors.

The companies say they cannot spell out the full benefits of the merger before completing negotiations over the shape of the company's capital and possible guarantees on investment.

EADS Chief Executive Tom Enders and BAE Systems Chief Executive Ian King were due to review the talks with their boards and make a decision on the merger, on which the two managers have staked their careers and industrial ambitions.

"Ian King and Tom Enders will discuss the situation later today and then decide, jointly with the respective company Boards, the way forward," EADS said in an emailed statement.

The companies have insisted they will only request an extension to the Oct. 10 deadline set by UK regulators if there is meaningful progress at government level.

Britain and France have the power to veto the deal, which must also be approved by the United States and overcome political objections in Germany.

UNIONS ON STAND-BY

Core EADS shareholders Lagardere , the French media firm, and German car firm Daimler also have the right to veto a deal. Both have expressed unease about the terms but are not participating in board discussions to prevent a conflict of interest, according to a person familiar with the talks.

EADS has put its unions on stand-by for briefings on a possible deal in either one week or two weeks, union officials said, suggesting the companies would seek a far shorter extension that the maximum allowed 28 days. A scheduled European works council went ahead on Tuesday with no managers present.

British Defence Secretary Philip Hammond said he hoped to meet his French, German and U.S. counterparts to discuss the proposed merger on the sidelines of a NATO meeting.

"We always knew that there was a crunch point this Wednesday and the company has to decide today whether it's going to ask the stock exchange for an extension of time or not," Hammond told reporters in Brussels.

(Additional reporting by Gernot Heller, Mathias Blamont, Sophie Sassard, Paul Sandle, Chris Vellacott, Arno Schuetze, Elizabeth Pineau, editing by Peter Millership)

((tim.hepher@thomsonreuters.com)(+33 1 49 49 54 52)(Reuters Messaging: tim.hepher.thomsonreuters@reuters.net))

Keywords: EADS BASE/

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