EADS and BAE Systems merger talks reaching critical stage

Reuters reports that EADS has rejected a German news agency report that merger talks with BAE Systems had collapsed, instead confirming progress between Britain and France over the deal.

Reuters has said that Britain and France had made progress in talks over a possible cap on state shareholdings but any deal must overcome opposition from Germany.

Bloomberg reports, citing "two people familiar with the talks", that both companies are considering whether to file an extension to tomorrow's 17:00 (London) deadline in order to convince governments.

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Only yesterday, BAE's major shareholder Invesco Perpetual, which holds 13.33% of the company, came out against the merger.

"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 manager said.

It added: "Invesco is very concerned that the level of state shareholding in the combined group will heavily impair its commercial prospects - especially in the United States -and result in governance arrangements driven more by political considerations than shareholder value creation."