Germany Presses to Buy EADS Stake From Daimler to Guard Balance

Germany’s government should expedite the purchase of a stake in European Aeronautic, Defence & Space Co. from Daimler AG (DAI) to avoid the shares falling to private investors and unsettling a Franco-German balance of interests.

Germany’s finance ministry has asked parliament for the release of 1.6 billion euros ($2.07 billion) that had been set aside earlier to back the stake purchase, according to an Oct. 23 letter document obtained by Bloomberg News.

Negotiations to sell the Daimler stake to German state- owned bank KfW had progressed until merger talks between EADS and BAE Systems Plc (BA/) froze discussions. Daimler has promised shareholders a windfall from the sale, and the carmaker had taken measures to sell half of its 15 percent stake into the market this year to book the gain, the document said.

That alternative scenario requires the previously conceived transaction to go ahead in a “timely fashion” to maintain the Franco-German equilibrium, the document said. A key part of those negotiations involved Germany asking EADS’s core French owners, publisher Lagardere SCA (MMB) and the French state, to approve the transferred EADS stake’s keeping special rights accorded when EADS was first formed in 2000.

The planned merger between Europe’s largest civil aviation company and the region’s largest defense company fell apart this month after four weeks of public attempts to win government support. Germany was particularly reluctant to back the deal on concern its interest would get marginalized in a new entity run out of France and the U.K.

Constructive Talks

“We are in constructive talks with the German government,” said Daimler spokesman Florian Martens. He declined to comment specifically on the document.

Germany had originally planned to buy half of the stake owned by Daimler, equal to 7.5 percent. It later topped up its budget to buy shares in order to include another stake owned by a group of regional savings banks and other investors. Under that expanded mandate, KfW would end up with about 13 percent.

When EADS was created in 2000, investors from France and Germany were required to hold balanced voting rights, with each side now controlling 22.5 percent. Upon EADS’s formation, each side controlled 30 percent, though the stakes were cut when Lagardere and Daimler agreed to each sell 7.5 percent in 2006.

Daimler today directly owns 15 percent, and manages the 7.5 percent held by the group of public and private financial institutions that includes Deutsche Bank AG and KfW. Lagardere owns 7.5 percent and has management control over the French government’s 15 percent.

KfW share purchases are viewed financially as temporary allocations of public money and do not appear on the federal government’s budget accounts. At the same time, the sovereign debt crisis and Germany’s constitutional “debt brake” mean Germany must tame growth in spending.

To contact the reporter on this story: Andrea Rothman in Toulouse at aerothman@bloomberg.net; Dorothee Tschampa in Frankfurt at dtschampa@bloomberg.net

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

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