Fund manager Invesco Perpetual, the biggest single shareholder in British arms maker BAE Systems, warned Monday it had "significant reservations" over a tie-up between the group and European aerospace giant EADS.

The news came one day after British defence minister Philip Hammond declared that Britain could use its "golden share" in BAE to block the merger unless France and Germany limited their stakes in the future company.

The political wrangling and Invesco's concerns come ahead of an imminent deadline for a BAE/EADS merger which would create the world's top group in the fields of civil and military aerospace.

The two firms have until Wednesday -- a British stock market deadline for a blueprint of the deal -- to make a formal statement to say that the proposed deal is going ahead, being abandoned, or to request a delay.

In an indirect reference to Berlin and Paris, Invesco said it was "very concerned" that the level of state holdings in the new group would affect its commercial position -- particularly in the key US market.

Funds managed by Invesco own approximately 13.3 percent of BAE's total share capital.

"Invesco does not understand the strategic logic for the proposed combination," the company said in a strongly-worded statement.

"Invesco believes the merger would materially jeopardize BAE's unique and privileged position in the United States defence market, and has been unable to identify any corresponding benefits to offset this.

"Invesco is very concerned that the level of state shareholding in the combined group will heavily impair its commercial prospects -- especially in the United States -- and result in governance arrangements driven more by political considerations than shareholder value creation."

Defence minister Hammond later insisted that "the shareholders absolutely have to agree" before a deal is struck and said that the government would not allow a deal that hurts BAE's US activities.

"If we can get the safeguards we need for British jobs, for Britain's national security, for Britain's defence industry and, crucially for its relationship with the United States, then we will give the deal our blessing," he told Channel 4 News.

EADS, which makes Airbus jets, and BAE Systems announced last month that they wanted to create a $45-billion (35-billion-euro) giant to rival US rival Boeing, but Berlin, Paris and London each has a veto right on the merger negotiations.

BAE and EADS have presented the tie-up as a merger, but one bone of contention is that EADS shareholders would end up with an overall 60-percent interest in the new group. BAE would have a 40-percent holding.

"The merger ratio does not reflect BAE's superior cash generation, or the quality of its earnings stream, derived from the length and nature of its customer contracts," Invesco added on Monday.

It warned also that shareholder dividends might not be a priority for the new group, while the dual-listed structure could hit potential synergies.

"Invesco believes BAE is a strong business with distinctive positions in the global defence market -- especially in the US and UK -- and good stand-alone prospects," it said.

France holds a 15-percent share of EADS which would be diluted to nine percent in the new entity. Germany wants the right to buy a nine-percent stake in the new group to maintain parity with France.

By Monday's close, BAE's share price had slid 1.30 percent to 323.85 pence on London's FTSE 100 index of top companies, which fell 0.24 percent at 5,841.74 points.

In Paris, EADS shares slid 0.87 percent to 26.25 euros on the CAC 40 index, which was down 1.46 percent at 3,406.53 points.