UPDATE 1-BAE Systems and EADS walk away from $45 billion merger

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LONDON, Oct 10 (Reuters) - Talks on a $45 billion mergerbetween EADS and BAE Systems collapsed onWednesday after the governments of France, Germany and Britainfailed to reach agreement over a deal to create the world'slargest aerospace and arms group.

Britain's BAE and the Franco-German EADS had been workingtowards a 1600 GMT deadline to either walk away from the talksor seek an extension.

In a statement, BAE said it had become clear that theinterests of the governments could not be adequately reconciledwith each other or with the objectives that BAE and EADSestablished for the merger.

The governments had failed to reach agreement over issuessuch as where the headquarters should be based and how much theFrench and German governments should own.

"BAE Systems and EADS have therefore decided it is in thebest interests of their companies and shareholders to terminatethe discussions and to continue to focus on delivering theirrespective strategies," it said.

BAE said the two groups had agreed the structure of the dealin terms of commercial, legal, management and governancearrangements but that they had never got to the point where theycould explain it to shareholders.

"We are obviously disappointed that we were unable to reachan acceptable agreement," BAE Chief Executive Ian King said.

"However, our business remains strong and financiallyrobust. We remain committed to delivering total shareholdervalue and look to the future with confidence."

EADS Chief Executive Tom Enders said the Airbus owner wouldcontinue on its "international growth path" and said itsshareholders could continue to expect "profitable growth,excellent liquidity and programme execution based on a strongorder book".

(Reporting by Kate Holton; editing by Jason Neely)

((kate.holton@thomsonreuters.com)(0044 207 542 8560))