A steep drop in global defence spending has prompted EADS and BAE to re-examine a tie-up to create a European giant to compete with U.S. rivals such as Boeing.

Lagardere, the French government and German automaker Daimler are part of a complex shareholder pact at EADS, which was formed in 2000 from aerospace companies in Germany, France and Spain. Under the pact, Lagardere represents the combined French stake.

EADS and BAE have promised a “normalised” corporate governance structure under any merger, something considered essential to winning backing from UK and U.S. governments.

In their article, the CEOs touted the benefits of the deal but made scant reference to core shareholders who can block it, and Lagardere’s statement served to remind the company and French government its voice must be heard in any compromise.

Lagardere has said it wants to sell its 7.5 percent stake in EADS and will be keen to get the best valuation in any deal. It called the current proposed terms, which would give EADS shareholders 60 percent of a new company, “unsatisfactory”.

“GOLDEN SHARE”

Any deal would require agreement on the rights and/or ownership role of the British, German and French governments. Jobs are also an important component of the talks.

A source in Germany who is privy to the negotiations said it was more likely that the deal would collapse than that the three governments would reconcile their interests and reach agreement.

A UK defence ministry source said Britain would use a “golden share” in BAE to block a merger unless the new group’s defence business is based in the UK and has a British CEO.