EADS Opposes State Limits as Germany Lifts Role

European Aeronautic, Defence and Space Co. investors should be free to buy and sell their shares and not be bound to the political will of keeping a cross-border balance among shareholders, the chief executive officer said.

EADS, created a decade ago from aerospace and defense assets in Europe, maintains a shareholder structure that balances French and German control. Germany took on a larger role last week when it purchased a 7.5 percent stake from carmaker Daimler AG (DAI), a move that Airbus SAS CEO and EADS board member Tom Enders derided as overbearing state involvement.

“For the long term, I have proposed to the board of directors a solution that would assure the protection of company and assure French-German equality by other means than the shareholders pact,” EADS CEO Louis Gallois told reporters at the Dubai Air show. “This would have the merit of equality, and shareholders could buy or sell shares as they pleased.”

Germany’s purchase of the Daimler stake provides short-term stability only, and falls short of a longer-term aspiration to expand shareholder flexibility, Gallois said in a meeting with journalists at the show. Gallois has promoted his vision of EADS as a pan-European manufacturer with a greater proportion of freely traded shares, making it more attractive to investors.

Evenly Balanced

French publishing company Lagardere SCA (MMB) owns 7.5 percent of EADS, and the French state directly holds 15 percent, over which Lagardere exercises management control via a holding company.

Following the sale of a 7.5 percent stake to German state- owned bank KfW next year, Daimler will retain a direct holding of 7.5 percent, and voting control over the same amount that’s held by German regional states and a group of banks.

French and German shareholder interests in EADS have been evenly balanced since its creation in 2000, and government involvement in EADS is considered unattractive by corporate shareholders, said Zafar Khan, an analyst at Societe Generale in London. The construction has contributed to EADS trading at lower multiples of earnings than competitors, Khan said.

At Boeing Co (BA),, the ratio of enterprise value to operating profit is about 8.8, compared with about 5.5 at EADS, according to data compiled by Bloomberg. Still, EADS shares have advanced about 26 percent so far this year, compared with a 2.5 percent gain on the stock of Chicago-based Boeing.

EADS programs are frequently the subject of cross-border political meddling, with governments trying to retain control over aircraft, space, and military projects. German government officials have lamented that German Airbus factories were short- changed in the work distribution on the A350 wide-body jet, which is being assembled in France.

Gallois is set to retire from EADS in mid-2012, with Enders as his most likely successor. France and Germany have agreed to alternate the nationalities of the leaders at EADS and Airbus, making Airbus Chief Operating Officer Fabrice Bregier a likely successor to Enders should the German inherit Gallois’ post.

To contact the reporter on this story: Andrea Rothman in Dubai at aerothman@bloomberg.net

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

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