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Big shareholder grounds EADS and BAE merger

AFP · 1 Oct 2012, 16:55

Published: 01 Oct 2012 16:55 GMT+02:00

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The two groups are aiming to conclude complex negotiations by an October 10th deadline, and want to avoid seeking an extension which in any case would cloud the prospects of a merger.

On Monday the French conglomerate Lagardere, an important minority shareholder in EADS, said that it "estimates that at this stage, the conditions of a merger between EADS and BAE are unsatisfactory."

The group called on the European Aeronautic Defence and Space Company, in which it holds a 7.5% stake, "to re-examine the project of the EADS-BAE merger to better take into account the interests of EADS' French shareholders", saying that this was "indispensable."

The statement by Lagardere contrasted with a statement by the the head of EADS, Tom Enders, and of BAE Systems Ian King at the weekend.

They said that the tie-up would offer the two companies the best strategic opportunity on the basis of their international management, technology and investment capacity and global market access, for the benefit of all interested parties.

But Lagardere riposted: "This project, despite the industrial and strategic potential with which it is credited, has not so far been shown to create value for EADS."

EADS and BAE Systems present the tie-up as a merger, but one bone of contention to emerge in the negotiations is that EADS shareholders would end up with a 60% interest in the new entity.

Some voices have argued that a 70-30% share-out would be more appropriate but the executives behind the proposal insist that 60-40% is appropriate.

However, since the announcement of the tie-up talks on September 12th, EADS shares have fallen by nearly 30%.

The German counterpart to Lagardere, Daimler which represents the German government's interest in the group, has also objected that valuation is unduly favourable to BAE Systems.

A source close to the French side in EADS, who declined to be named, said: "There is a problem of parity (fair valuation) for all of the parties involved."
Under British takeover rules, the two companies are not permitted to explain to analysts how they intend to generate extra value.

They have until October 10th to make a formal statement to the authorities saying that the deal is going ahead, is being abandoned, or to request a delay.

A tie-up between EADS, which controls aircraft maker Airbus, and British arms manufacturer BAE Systems would create a €35 billion ($45 billion) giant to rival Boeing of the United States.


-- A knot of commercial and national interests --

But the players involved have not been able to agree to the terms of the merger because of a knot of commercial and national interests.

Most of the shares in EADS are controlled directly or indirectly by the governments of France, Germany and Spain. BAE Systems, a private quoted company, is important to British and US defence programmes.

Lagardere and the French state own 22.35% of EADS, but Lagardere provides all of the French directors on the board. In Germany, Daimler exercises the voting rights on behalf of the German state interest of 22.35%.

Under the proposal, Germany, France and Britain would each have a so-called golden share with the power to prevent any shareholder from acquiring more than 15% of the new entity.

Germany's Der Spiegel reported on Sunday that France and Germany had agreed to negotiate with Britain for Berlin and Paris to each obtain a nine-percent stake in the merged giant.

Enders and King said in their statement that the interest of Germany would be ensured without any need for Germany to be a shareholder in the proposed group.

The Financial Times Deutschland reported on Friday that Paris and Berlin wanted a blocking minority. Britain opposes this.

A source close to the talks told AFP last week that it looked as though BAE and EADS would ask Britain's stock market regulator for a delay.

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