Defence Secretary Philip Hammond said the proposed merger of defence giant BAE Systems with French rivals EADS collapsed because it was "too difficult" to reconcile the differences of the governments involved.
Mr Hammond sidestepped questions over whether the French or the Germans were to blame for the failed £28 billion deal.
He said BAE now faced "challenges" and warned it must "evolve".
"The British Government has always understood the attraction of building what would be a world leading defence company but it had to be done on the basis it was in Britain's national interest and we set out our requirements to make that happen and the French and German governments have done the same and obviously the company is looking at all of the facts and all of the stakeholders and has just decided it was too difficult to progress this project further."
Asked if the sticking point was the refusal of the French and the Germans to give up sufficient control over the company, Mr Hammond said: "Yes, our view is that for this company as a merged entity to become successful it must be free to operate as a commercial company free of undue control or influence by any single government. That is something the company has decided it is not able to achieve."
The deal would have created a defence titan with combined sales of £60 billion and more than 220,000 staff, with around 52,000 employees in the UK.
BAE said it had become clear that the interests of government stakeholders - including those in France and Germany - could not be reconciled with each other or with the company's objectives.
Mr Hammond said the Government's main objective had been to protect the UK's security interest and British jobs.
"We have had a concern throughout about the level of state shareholding, we've made clear we want to see a reduction in the holdings by governments and that's an issue I know the company has been discussing with the other governments involved.
"I think what's happened is looking at all of the issues that would have been necessary to make this deal work for all of the parties the companies have just come to the conclusion that they have got other things they can do."