Big shareholder grounds EADS and BAE merger

A key player in European defence group EADS objected on Monday to its tie up with BAE Systems, saying that the terms of the effort to create the world's biggest aerospace group should be re-drawn.

Big shareholder grounds EADS and BAE merger
Photo: BAE Systems

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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Renault shares plunge as Fiat merger talks fail

Renault shares plunged on Thursday after Italian-American carmaker Fiat Chrysler said it had withdrawn a proposal for a merger, saying it would be unable to reach an agreement with the French government.

Renault shares plunge as Fiat merger talks fail
A merger between Fiat Chrysler and Renault would have created the world's biggest carmaker. Photo: Marco Bertorello/AFP

Fiat Chrysler (FCA) “remains firmly convinced” of the interest of its offer but “political conditions do not currently exist in France to carry out such an arrangement”, it said in a statement.

French automaker Renault announced earlier that its board of directors had not reached a decision following a crunch meeting held at the request of the French state, the biggest shareholder in Renault with a 15 percent stake.

Fiat Chrysler proposed a “merger of equals” with Renault last week which was welcomed by financial markets and had been given a conditional green light by the French government, although it warned against “any haste” regarding the proposed 50/50 merger.

READ ALSO: Fiat Chrysler proposes merger with Renault

Photo: Loic Venance, Marco Bertorllo/AFP

French Finance Minister Bruno Le Maire had said a merger, which would have brought together the flagship brands as well as Alfa Romeo, Jeep, Maserati, Dacia and Lada, would be “a real opportunity for the French auto industry”. However, he had set various conditions, including that no plants be closed as part of the tie-up and that the Renault-Nissan alliance continues. 

A source close to Renault said Le Maire had asked for a board meeting next Tuesday after he returns from a trip to Japan where he will discuss the proposal with his Japanese counterpart.

At Wednesday evening's board of directors vote at Renault's headquarters near Paris, all the directors were for the merger, apart from a representative of employees affiliated with the powerful CGT union and two representatives of Nissan — a long-time Renault partner — who abstained, the source added.

The two directors appointed by Nissan, however, asked “to write in the minutes that they would say yes with a little more time”.

Fiat Chrysler said: “FCA remains firmly convinced of the compelling, transformational rationale of a proposal that has been widely appreciated since it was submitted, the structure and terms of which were carefully balanced to deliver substantial benefits to all parties.

“However, it has become clear that the political conditions in France do not currently exist for such a combination to proceed successfully.”

Renault holds a 43-percent stake in Nissan, whose stocks tumbled 2.64 percent to 742.7 yen on Thursday after the withdrawal was announced. Relations in the partnership have been under strain since the arrest last November of former boss Carlos Ghosn, who is awaiting trial in Japan over charges of under-reporting his salary for years while at Nissan and using company funds for personal expenses.

The merger would have created a group worth more than €30 billion, producing 8.7 million vehicles per year. The combined mega-group — including Nissan and Mitsubishi — would be by far the world's biggest, selling some 15 million vehicles, surpassing Volkswagen and Toyota, which sell around 10.6 million each.

Foreign takeovers of major French firms are highly controversial and successive governments have sought to defend domestic industrial groups which are seen as important for their technology or jobs.