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EADS Revamps Shareholder Accord Crimping Government Power

December 05, 2012

EADS Revamps Shareholder Accord Crimping Government Powers

Employees work on the interior fuselage section of an Airbus A380 aircraft during assembly at the company's factory in Hamburg, Germany. Photographer: Jason Alden/Bloomberg

European Aeronautic, Defence & Space Co. (EAD) said Germany will join France and Spain as a government shareholder in the largest revamp of the company ownership since its creation 12 years ago.

The German state will become an stakeholder in the parent of planemaker Airbus SAS for the first time, with 12 percent that match the French side, EADS said. Carmaker Daimler AG (DAI) and Paris-based publisher Lagardere SCA (MMB) will “largely reduce” their stakes, with Daimler selling partly to Germany and partly on the open market. Spain will own about 4 percent of EADS.

The changes, which will eliminate governments’ veto rights over business decisions while increasing combined state stakes to 28 percent, are intended to convert Toulouse, France-based EADS into what Chief Executive Officer Tom Enders has called a “normal” company. Resistance from German authorities prompted EADS and London-based defense company BAE Systems Plc (BA/) to abandon a merger plan in October.

“We are making a big leap forward in terms of governance, actually the most important change since the creation of our company,” Enders said in the statement. “Strategy and industrial projects in the future will be solely defined and decided by the board of directors and the executive team, the operations will be managed without any outside interference from specific shareholders or shareholder concerts.”

Rockets, Satellites

EADS, whose businesses also include helicopters, space rockets, missiles and satellites, was established in 2000 when the German, French and Spanish partners in Airbus combined aerospace assets. A so-called “shareholder pact” required the main German and French owners’ stakes to match and gave the core investors final say over major decisions.

Governments will retain some influence, including the right to block hostile takeover and relocation of the headquarters. They will also have approval authority over four of 12 board members. An extra shareholder meeting will be convened in March to approve the changes, EADS General Counsel Peter Kleinschmidt said.

The board members and executive committee will be dominated by European Union nationals. The arrangement was modeled after the “golden share” the U.K. has with BAE. The amount of freely traded shares will exceed 70 percent.

Some Progress

“It’s progress but they’re still a long way from the ultimate goal of being a freely floated company,” said Richard Aboulafia, vice president at the Teal Group in Fairfax, Virginia. “You’re still talking about a high percentage of the company owned by governments or government proxies.”

New rules governing EADS bar any individual or group of shareholders crossing a 15 percent threshold.

To safeguard French and German interests in sensitive military technologies, two national defense companies will be set up. The governments will have approval rights over three of each units’ directors, two of whom will sit on the EADS board.

France endorsed the changes in part because the accord clarifies issues that were not previously codified, said a French government official who could not be named under government rules. That includes assuring Toulouse is the operational headquarters of the business, and that Airbus and Eurocopter are based in France. German Chancellor Angela Merkel also said she approves of the new accord.

No promises on site locations are in the accord, said Marwan Lahoud, EADS’s chief of strategy. Decisions to move headquarters will be left to the board, he said on a call.

Daimler, the Stuttgart, Germany-based maker of Mercedes- Benz luxury cars, now controls 22.5 percent of EADS, with one- third of that stake held by a group of German banks and regional governments.

Daimler Disposal

Daimler began the accelerated bookbuilding process on a first tranche today and plans to complete the process tomorrow, the company said separately. A second transaction period will begin when a lock-up period expires 180 days later.

“We welcome this reorganization of the shareholder structure with limited state influence,” Daimler Chief Financial Officer and EADS Board Member Bodo Uebber said. “We will invest the proceeds of the sale in the global growth of our divisions and the extension of our technological leadership.”

Before year-end, Daimler will sell as much as 7.44 percent of its shares, with Germany’s KfW bank buying 2.76 percent. The state-owned bank will also acquire shares held by private investors that are part of a consortium which includes German federal states. Those transactions will bring KfW’s total to 10.2 percent, which will become 12 percent after shares acquired in a planned buyback are canceled, Kleinschmidt said.

Magazine Interest

Lagardere, the owner of French book publisher Hachette and Elle and Paris Match magazines, holds a 7.5 percent direct stake in EADS and controls the French state’s 15 percent holding. The media company will dispose its shares next year.

EADS’s freely traded stock will increase from 49 percent under the new structure. The company will buy back 15 percent of its shares “subject to market conditions and shareholder approval,” it said.

“This will not harm our financing flexibility,” Chief Financial Officer Harald Wilhelm said. Instead, it should boost the businesses’s earnings, he said.

The repurchase will involve a first tranche of 7.5 percent open to all shareholders, with 5.5 percent of a second 7.5 percent repurchase reserved for Lagardere.

EADS rose for the sixth straight day today in Paris and closed at 27.23 euros, valuing the company at 22.5 billion euros.

To contact the reporters on this story: Robert Wall in London at rwall6@bloomberg.net; Andrea Rothman in Toulouse at aerothman@bloomberg.net

To contact the editor responsible for this story: Benedikt Kammel at bkammel@bloomberg.net


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