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EADS and BAE merger must be re-examined, warns Lagardère EADS and BAE merger must be re-examined, warns Lagardère
(about 5 hours later)
A major shareholder in EADS has added further complication to the proposed €34bn merger with Britain's BAE Systems by urging EADS to re-examine the terms of an "unsatisfactory" deal. A major shareholder in EADS has added further complication to the proposed €34bn merger with Britain's BAE Systems by urging the Franco-German industrial group to re-examine the terms of an "unsatisfactory" deal.
The intervention of Lagardère, which owns 7.5% of EADS, has added a financial dimension to a transaction whose coverage over the past fortnight has largely been dominated by political concerns. The intervention of Lagardère, which owns 7.5% of EADS, has added a financial dimension to a transaction that has largely been dominated by political concerns.
To proceed, the combination of the UK's largest defence contractor and the owner of Airbus needs the approval of the British, French, German and US governments, the latter being BAE's largest and most politically sensitive customer.To proceed, the combination of the UK's largest defence contractor and the owner of Airbus needs the approval of the British, French, German and US governments, the latter being BAE's largest and most politically sensitive customer.
Lagardère focused on the investor case on Monday when it released a statement criticising the terms of the tie-up, in which EADS shareholders will emerge with 60% of the business while BAE stockholders take 40%. Lagardère, a conglomerate whose interests span publishing and airport retail, focused on the investor case on Monday when it released a statement criticising the terms of the tie-up, in which EADS shareholders will emerge with 60% of the business while BAE stockholders take 40%. Describing the terms of the merger as "currently unsatisfactory," the company said: "Lagardère calls on the management of EADS to undertake, without delay, the indispensable re-examination of the project to combine EADS and BAE, to better take into account the interest of all the French controlling shareholders of EADS." Lagardère's chief executive, Arnaud Lagardère, is also the chairman of EADS.
"Lagardère calls on the management of EADS to undertake, without delay, the indispensable re-examination of the project to combine EADS and BAE, to better take into account the interest of all the French controlling shareholders of EADS," the company said. Lagardère's chief executive Arnaud Lagardère is also the chairman of EADS. There has been speculation that the French government wants to see ownership shared evenly between Paris, London and Berlin, which would leave BAE shareholders with 33% of the dual-listed business. But it is understood that BAE and EADS are not prepared to alter the balance of the new company's ownership. Lagardere's intervention came as the chief executive of EADS and likely boss of the enlarged business, the German national Tom Enders, prepared to extol the merits of a deal in an appearance at the Royal Academy of Engineering on Monday night.
The intervention comes amid reports that the German and French governments have agreed a common position on the deal, including controlling large shareholdings in the new business while giving up some veto rights. According to reports, Germany and France are preparing to demand direct stakes of 9% in the merged BAE and EADS.
Under the current structure, Lagardère also represents the Elysée's 15% stake in EADS, bringing the French interest to 22.5%, while Germany's national interest is represented by a 22.5% stake held by Daimler, the car manufacturer, which in recent months had been looking to sell down its stake to a state-controlled bank. Under the current EADS structure, Lagardère and the French state holding company, Sogepa, own 22.35% of EADS, while Germany's national interest is represented by a 22.35% stake held by Daimler, the car manufacturer.
According to the Financial Times, Germany and France would take direct stakes of 9% in EADS. Once Daimler and Lagardère's interests are added, the FT said, the total Franco-German ownership of the company would be 27%. The UK government, which has a golden share in BAE that allows it to block any change of ownership, has voiced concerns over the impact on 52,000 manufacturing jobs in Britain but has signalled that it is broadly in favour of the deal. The UK government, which has a golden share in BAE that allows it to block a non-UK shareholder taking a significant stake, has voiced concerns over the impact on 52,000 manufacturing jobs in Britain but has signalled that it is broadly in favour of the merger.
However, a Reuters report on Monday afternoon claimed the deal is in danger of collapse owing to the diverging views of the three main governments involved. Citing three unnamed German sources, the report stated that the 9% shareholdings sought by Paris and Berlin would not be acceptable to the UK. "You could hardly sell this in Britain," one source told Reuters, adding: "Then we won't get a deal." A source close to the deal said the companies had done "everything that they need to do" to meet a 10 October deadline to agree terms, as required by the UK Takeover Panel, but governmental wrangling is now the main issue. Another source added that both sides need the UK, German and French governments to reach agreement before anything is put to shareholders.
BAE and EADS declined to comment. However, the companies' chief executives made a renewed declaration of the deal's merits on Monday morning in a joint op-ed piece published in the UK, France and Germany. "Until we have government support or approval for the basic structure, we don't have a deal that we can put to shareholders."
Ian King, the BAE chief executive, and his EADS counterpart, Tom Enders, said: "With the necessary political will and support, management determination, and proper governance, BAE Systems and EADS can produce a whole that is greater than the sum of its parts. Together, we would become a business with a global footprint, and a wider customer base. Britain's largest trade union, Unite, voiced support for the deal yesterday [Monday]. Ian Waddell, Unite's national officer for aerospace and shipbuilding, said BAE had to reduce its dependence on shrinking US and UK defence budgets. "I don't see a rosy picture going forward. I see the possibility of terminal, and potentially ignominious decline."
"We would be able better to ride the cycles of civil aviation demand and defence spending. And we would be a business with the scale and stability to invest more in R&D, and a force for greater competition and growth. All of this would deliver tangible benefits to our customers in each of the defence, aerospace and security worlds." Ben Wallace, the Conservative MP whose Lancashire constituency includes the BAE aircraft manufacturing site at Warton, Lancashire, said: "The question nobody seems to know the answer to is, how does this help the company commercially? I can see how it benefits EADS, because it wants to divest itself of the control of the French and German governments. But I do not see how this benefits BAE."
BAE and EADS are working to a 10 October deadline to thrash out a deal. Enders and King indicated that the merger would end Paris and Berlin's dominance of EADS. Enders' predecessor, Louis Gallois, had always denied political interference at EADS but the wrangling over his succession this year, and over the BAE deal, confirmed that politics was a major factor at EADS.
Enders and King said the new business would give all shareholders an equal say. "That would mean creating a business with governance structures which would enable it to operate in a normal commercial manner and which confers the same rights on all shareholders, large and small."