European Aeronautic, Defence & Space Co. (EAD) is considering a buyback of as much as 3 billion euros ($3.93 billion) worth of stock to help mitigate the effect of shares being sold on the market as founding investors pare their stakes, people familiar with the plan said.
The buyback would happen next year after shareholders have reorganized their holdings, said the people, who asked not to be identified because the plan is private. German carmaker Daimler AG (DAI), which has said it wants to cut its stake to focus on its main business, will sell as much as 7.5 percent of EADS stock on the market this month depending on demand, the people said.
EADS is approaching the biggest overhaul of its ownership structure since the parent of Airbus SAS was founded in 2000. While Germany would become a direct shareholder with a stake equaling France’s holding, neither government would gain sway over strategy, as Chief Executive Officer Tom Enders seeks to avoid state involvement in the running of his company.
EADS declined as much as 39 cents, or 1.5 percent, to 26.05 euros in Paris following the Bloomberg report, after advancing as much as 3.8 percent in earlier trading. The stock has gained 8.9 percent this year. Daimler, the maker of Mercedes Benz cars, dropped as much as 0.2 percent in Frankfurt.
The buyback’s size is still being negotiated and will likely be in the range of 2 billion euros to 3 billion euros, two people said. EADS would cancel the shares it has bought, they said.
Germany, which now doesn’t own EADS shares directly, would gain its holding by taking over some of the 7.5 percent holding now owned by some German banks and federal states, as well as half of Daimler’s 15 percent direct holding, the people said.
The group that owns 7.5 percent may also participate in the accelerated bookbuilding, one of the people said.
Spokespeople for EADS, based in Toulouse in southern France, and Stuttgart-based Daimler declined to comment.
Lagardere, the Paris-based publishing business whose CEO, Arnaud Lagardere, is EADS chairman, is set to follow with a disposal next year. The company holds 7.5 percent of EADS, and Lagardere has said he wants to sell the holding to concentrate on his media assets.
The disposals are likely to weigh on EADS’s share price, a drop that a buyback would seek to damp. EADS, which has 827.1 million shares outstanding, would cancel those purchased, the people said. The move would require an extraordinary shareholder meeting to gain approval next year, they said.
EADS had more than 8 billion euros in cash on hand at the end of September, giving the company enough financial firepower for a buyback without jeopardizing its credit rating. Total gross cash stood at at 13.7 billion euros in September, Chief Financial Officer Harald Wilhelm told investors yesterday.
While governments will be major EADS shareholders, the new setup will no longer give them veto powers over strategic decisions, limiting their special rights instead to blocking hostile takeovers, the people said. France would hold 12 percent directly and park another 3 percent it already owns in a trust to assure parity with German, the people said. Spain’s share would decline to about 4 percent, they said.
Enders has lobbied for years to curtail governments’ involvement in EADS as he seeks to create what he has termed a “normal company.” The proposed merger with London-based BAE Systems Plc (BA/), announced in September, fell apart against German opposition in October, derailing Enders’ attempt to limit state control.