Exclusive: Germany lists reservations on EADS/BAE deal

Germany's doubts, revealed in an economy ministry document, obtained by Reuters on Monday, is the latest sign that the companies' plans to form a $45 billion aerospace and defense giant could fail to gain traction as a result of disagreement between Paris and Berlin over the degree of government say in the future company.

EADS has warned it will walk away from its hoped-for tie-up with BAE if the new group finds itself subject to excessive state meddling.

The government paper sets out German reservations to the merger, fraught with national economic and security concerns, and is addressed to a parliamentary committee studying the issue.

The subject of EADS dominated discussions between German Chancellor Angela Merkel and French President Francois Hollande in southern Germany on Saturday, but the pair failed to reach any common decisions. They are however striving for a joint position, the paper said.

"A key point of the discussions with EADS is the question of take-over protection," the paper stated.

EADS and BAE have said they will offer the governments of France, Germany and Britain a "golden share" in the new company, which sources say is aimed at preventing a hostile takeover.

"France and Germany agree the "special share" offered by the company does not offer a complete guarantee, as this can possibly be challenged by European law. Possibilities for achieving an effective take-over protection are under discussion but will be difficult to defend legally," it added.

Golden share arrangements can and have been challenged within the European Union. The European Court of Justice in 2003 ordered the British government to give up its golden share in airport operator BAA, for example, in a ruling that found it breached EU law on the free movement of capital within the EU's single market.

Barring an extension, EADS and BAE have until October 10 under UK takeover rules to set out detailed plans for the merger.

EADS is controlled by a core group of French and German public and industrial interests. German carmaker Daimler, French media firm Lagardere and the French state all hold substantial direct stakes.

The German government has no direct stake, but plans to acquire part of German carmaker Daimler's holding through state development bank KfW. The acquisition plan has been "significantly complicated and delayed" by the proposed merger, the government paper noted.

In addition to concerns about takeovers and jobs, the ministry paper showed Berlin is unhappy with plans to value EADS at 60 percent of the combined company. Sources have also told Reuters that Daimler feels the deal undervalues EADS.

The paper said the 60-40 ratio "does not correctly reflect the actual value which is closer to 70 to 30."

A British parliamentary committee said on Monday it too would investigate the impact of the deal regarding BAE, including implications for UK jobs and the company's role in sensitive UK and U.S. defense programs.

The German paper said guarantees provided on future location of factories were not reliable, underscoring fears about possible job losses if the plan goes ahead. EADS has some 50,000 employees in Germany across 29 sites.

The merger plan says that states are to have no consultation rights in future operational decisions.

Strategic involvement in EADS by the French and German governments in the past has sparked concern about undue influence over issues including where factories are built and where jobs are created.

(Reporting by Gernot Heller; Writing by Gareth Jones and Alexandra Hudson. Editing Noah Barkin and Jane Merriman)