British arms maker BAE Systems will pull out of a tie-up with European aerospace giant EADS unless the new company was free of political influence, the Financial Times reported on Friday.
"BAE Systems has warned EADS it will walk away" from merger talks unless the combined group "is allowed to operate as a normal company without political interference," the FT wrote, citing people close to BAE.
The business daily added that BAE has demanded that the enlarged group's defence unit is based in Britain.
The French and German governments hold big stakes in EADS, while the British state has a golden share in BAE that allows it to veto deals that it perceives not to be in the public interest.
Under the plan being discussed, the two groups would issue special golden shares in BAE Systems and EADS to each of the French, German and British governments.
The talks envisaged BAE Systems owning 40 percent of the enlarged group, with EADS holding a majority 60-percent stake.