FRANKFURT/MUNICH (Reuters) - Linde LING.DE labor representatives will vote against the German industrial gases group's planned $65 billion merger with U.S. rival Praxair PX.N, the head of the German works council told Reuters on Thursday, in a move that could scupper the deal.

Linde Group logo is seen at company building before the annual news conference in Munich, Germany March 9, 2017. REUTERS/Lukas Barth

The merger would entail significant job losses to achieve the promised $1 billion of synergies, with Linde bearing the brunt, while workers would lose their influence on strategy with the headquarters set to move from Germany, Gernot Hahl said.

Linde and Praxair are racing to finalize a deal by Linde’s annual shareholder meeting on May 10, after agreeing a non-binding term sheet in December. It would then have to be approved by the boards of both companies.

“Our position in the supervisory board is: No, we will not approve the merger,” Hahl said by phone.

Linde’s supervisory board, half of which is made up of labor representatives, voted unanimously in favor of the intention to merge in December, in exchange for job guarantees through 2021 for Linde’s 8,000 German workers.

Linde had until now characterized negotiations with its workers as constructive. “The negotiations with Praxair are proceeding as planned,” a Linde spokesman said on Thursday. He declined to comment on labor relations.

After a meeting with Linde executives last week, the company’s European works council sent a letter to staff saying it had become obvious the merger would lead to significant job losses in European countries outside Germany. The company employs several thousand people elsewhere on the continent.

“The European Works Council members and the workforce will therefore vigorously oppose the planned merger with Praxair,” said the letter seen by Reuters on Wednesday.

Other labor representatives said on Thursday they had previously only agreed to an “examination with an open outcome”.

“We are against it,” said trade union IG Metall. “We think nothing of the merger.”

Workers representatives also secured the backing of the number two official in Germany’s economy ministry.

“Such a planned merger needs the acceptance of the labor side. This clearly does not currently exist. The economic rationale of such a project has also not been convincingly put forward, in my opinion,” state secretary Matthias Machnig wrote.

One person close to the negotiations told Reuters it was unclear whether the companies could offer further concessions to appease workers and clinch the deal.

The merger is designed to create an industry leader with a combined market value of $65 billion and revenue of $29 billion that would overtake France's Air Liquide AIRP.PA and reunite a global Linde group split by the First World War a century ago.

It is the second attempt by the two companies to agree a deal. Previous talks ran aground last September over where to locate key activities and who would run the business, resulting in the departure of Linde’s two top executives.

CASTING VOTE

“The probability that the deal will still go through is still greater than 50 percent in our view, but has clearly decreased,” wrote Equinet analyst Knud Hinkel, who has an “accumulate” recommendation on Linde stock.

“If the deal actually collapsed, the share would suffer in the short term. In the long term, Linde could be better off without the merger.”

Linde shares were up 0.2 percent at 1308 GMT, broadly in line with the German blue-chip DAX .GDAXI.

The merger plan envisions a combined holding company being headquartered in Europe, but not Germany - probably Ireland, the Netherlands or Britain. These countries do not offer workers the same rights over strategy that Germany does.

Linde Chief Executive Aldo Belloni said earlier this month he would not push through a deal against the will of workers, but was confident of winning them over.

Linde’s supervisory board will meet next Thursday, but will not yet vote on the matter.

If the eventual vote is tied, Chairman Wolfgang Reitzle, the driving force behind the merger, will have a casting vote.

“The works council feels it is being pushed into something,” said an adviser to the labor side, who asked not to be named because his advice is confidential. “If the capital side wants it, then Reitzle will have to use his casting vote, if they’re so convinced.”