Airbus parent, European Aeronautic Defence and Space Company, EADS NV (EPA:EAD), and Britain’s BAE Systems plc (LON:BA) (PINK:BAESY) are contemplating coming up with a more lucrative merger ratio. According to Reuters, the two companies are considering changing the current 60:40 merger ration, to a possible 63:37, or 65:35 ratio, that will see EADS NV (EPA:EAD) control between 63% to 65% of the resulting company.

Eads and Bae system

Reuters quotes the sources of the information as follows: “The ratio could be changed up to 3 percentage points in favor of EADS,” an EADS advisor said, while another source is noted to have said that a change of up to 3-5 percentage points in favor of EADS was possible.

Nonetheless, BAE Systems plc (LON:BA) (PINK:BAESY) is believed to be building up a hard line, in refusal to any changes on the current ratio, with the source of the information expressing that the two companies were not discussing anything regarding a change to the ratio. Unfortunately, neither of the two companies could comment on the matter, as EADS NV (EPA:EAD) was not available, while BAE Systems plc (LON:BA) (PINK:BAESY) declined to comment.

If the deal eventually goes through, the resulting merger would create the world’s largest integrated defense and aerospace company, racking a combined value of about $93 billion in annual sales. However, the company would also be facing various large scale challenges in the form of national economic and security concerns.

Previously, some investors have condemned the proposed ratio  in the deal as being too biased toward BAE Systems plc (LON:BA) (PINK:BAESY), citing that the company is too much exposed to shrinking national defense budgets. For instance, the German government is noted to have proposed a 70:30 ratio, in favor of  EADS NV (EPA:EAD), while the French government feels that the merger would dilute its influnce in EADS, as it holds a direct stake.

Other major concerns have been the issue of Germans and French workers losing jobs, as a result of the merger. However, sources said that in countering this concern, EADS NV (EPA:EAD) and BAE are considering guaranteeing the three governments of France, Germany, and the U.K., board seats.

The two companies were recently downgraded by German’s Deutsche Bank (NYSE:DB) from Buy to Hold, while Investec Securities, recommended a Sell position. The believe that the deal is likely to benefit BAE systems more, while it sound like a risky affair for EADS. Deutsche Bank also reduced their price target on EADS, from $38 to $30. BAE Systems, shares soar following the announcement of the merger.

It is also noted that German Chancellor, Angela Merkel held a meeting with French President Francois Hollande, for discussions about the deal, which apparently did not materialize.

 Today, European Aeronautic Defence and Space Company EADS NV (EPA:EAD) was trading at EUR 25.13, up 13 cents, or a 0.52% rise, from the previous close, while BAE Systems plc (LON:BA) (PINK:BAESY) was down GBP 6.50, or a 1.94% decline, to trade at GBP 328.10 per share.