BAE/EADS merger: Alistair Darling warns on French and German stakes

Britain will be "taken to the cleaners" if the coalition gives in to French and German demands about the merger between BAE Systems and EADS, says Alistair Darling.

The former chancellor said it was "totally unacceptable" that France and Germany were demanding equity stakes in the new company, while British taxpayers will not hold any shareholding in a business that will combine the UK's largest defence contractor with the owner of Airbus.

"We will be taken to the cleaners," Darling told the Financial Times (subscription). "I don't see how you could have a large new company like this with the French and German governments having large direct and indirect stakes and we have none."

Darling said he would prefer it if all three governments held minimal stakes. "There is a danger that decisions in the defence and commercial businesses could be taken on the basis of politics rather than what is best," he said.

It is understood Downing Street is being the least intractable government player in the negotiations between the companies and the crucial state triumvirate of the UK, France and Germany. That indicates it is broadly happy with the outlines of a deal that will see EADS control 60% of the dual-listed business and BAE investors will hold 40%.

BAE and EADS have both suggested governments should not be able to hold large stakes in the combined company which, with a market value of £29bn, would be the world's largest arms, defence and aerosopace company.

Tom Enders, the chief executive of EADS who has long battled against political interference, has said: "We want to create a company that is even more successful internationally and attracts investors. There are lots of examples in this industry of companies that do not have to be influenced by politics."

Germany's concerns over the deal were outlined this week when Enders told the Bild newspaper that he was willing to discuss job guarantees.

At present France and Germany directly and indirectly hold a 22.25% stake each in EADS. Under the terms of the deal currently being thrashed out in a bid to meet a 10 October takeover panel deadline, those stakes will be reduced to around 9% each – a level that Darling views as anathema.

If the deal is agreed, it must be cleared by the US committee on foreign investment because the transaction involves multi-billion dollar defence contracts with the Pentagon – BAE's biggest single customer.