The Defence Secretary said on Monday that France's holding in the proposed merger of BAE Group with EADS must be reduced to single digits in order for the merger to take place.
Speaking on the BBC, Philip Hammond said: "Our position is that they will have to make a considerable reduction in their stake.
"It has to be below a certain level, putting them on a par with big institutional investors who will also own significant single-digit percentage stakes in the merged group."
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He added that he believed there was no possibility of the merger being completed by Wednesday's deadline of 16:00.
The UK, France and Germany were conducting talks on Monday in the hope of avoiding a disagreement over their respective state holdings in the merged company.
France currently holds a 15% stake in EADS. In the current situation, it could potentially buy out Lagarde, a major shareholder in EADS which is looking to dispose of its remaining 7.5% stake.
A merger of EADS and BAE would create the largest aerospace and defence company in the world.
Both BAE and EADS shares were down on Monday afternoon.
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