DaimlerChrysler (DCX) is getting its house in order. The No. 5 carmaker said on Feb. 9 that it sold 7.5% in European Aeronautic Defence & Space Co. (EADS) for €1.5 billion ($1.95 billion). The sale frees up cash to cover the costs of reorganizing its troubled Chrysler division. DaimlerChrysler shares were up $1.47 in New York trading, an intraday gain of 2.2%. EADS shares in Paris closed about 1.6% lower.
At the same time, the move is likely to help Airbus parent EADS get its own house in order by providing much-needed stability to the shareholder structure after a turbulent 2006. The sale, to a consortium of German banks and states, cuts DaimlerChrysler's stake to 15%. The company announced last April the plan to cut its stake, but it had been locked in talks with officials about how to proceed while preserving the German-French balance of power.
The resolution comes not a moment too soon for either company. DaimlerChrysler's profits have suffered as U.S. consumers shun Chrysler's models and opt instead for rivals' more fuel-efficient ones. EADS, meanwhile, reeled from crisis to crisis in 2006 after announcing a series of production woes related to its long-awaited A380 Superjumbo airliner, which resulted in the ouster of some of the top brass. The company said on Jan. 17 it would post an operating loss in 2006 as it took charges for penalty payments to A380 customers.
Tightening the Belt
"Daimler has some issues to solve that weren't apparent in April, so you can argue they are a winner from this," said Georg Stuerzer, head of the automotive team at HVB in Munich, Germany. He expects the Stuttgart-based carmaker to announce a restructuring charge of €1.2 billion when it reports earnings on Feb. 14.
As for EADS, "Now there is a clear shareholder structure so they can concentrate on their reorganization," he added. Just as well: One of the most crucial parts of EADS's effort is its Power8 initiative for Airbus, which seeks to squeeze out nearly $2.8 billion in operating costs by 2010.
EADS is also expected to announce thousands of job cuts at Airbus, which is why the structure of the agreement should allay concerns in Germany that the country would lack leverage at a critical moment in the aerospace company's history. Under the agreement, DaimlerChrysler will put its full 22.5% stake into a new company. The consortium of investors will receive one-third of the stake through a special-purpose entity, DaimlerChrysler said in a statement.
By encouraging German banks and states to buy the DaimlerChrysler shares, the German government has safeguarded the Franco-German balance of power at EADS. "The motivation is mainly political," said Stuerzer. "Germany is signaling it is aiming to protect its workers at EADS—that's not a usual act."