Sept. 21 (Bloomberg) -- Tom Enders, a swashbuckling one-time German paratrooper, was planning to join German Chancellor Angela Merkel on a state visit to China Aug. 29 when he decided to take an end-of-summer outing and go hang-gliding.
Merkel ended up traveling without him. Enders, chief executive officer of European Aeronautic, Defence & Space Co., made a hard landing, severely injuring tendons in his arms. After recuperating at his home near Munich, he returned to work on Sept. 3. Enders finally met Merkel Sept. 11 at the Berlin Air Show, his right arm in a sling that matched his suit.
“You thought I was tough but you didn’t know how tough,” he said with a smile.
Enders will need all that toughness and more as he attempts a merger with BAE Systems Plc, while keeping government meddling to a minimum. The fate of his goal to forge a European aerospace champion from assets spread throughout the region’s three largest economies now lies in the hands of the very governments he wants to keep out of the new company.
“Tom has been very frank about loathing this setup with political interference, and how that must change,” said Hans Weber, who runs an aerospace consulting company, Tecop International, in San Diego. “The French and Germans have to get out of meddling. That’s very important to him. It’s so important I think he’d stake his career on it.”
Enders, who took over as chief executive officer in June, has lobbied for years to pick apart the delicate balance between French and German interests, a legacy from EADS’s origins a decade ago when the company rose from a failed attempt to unite the region’s aerospace companies. He has made the political retreat a condition for the merger, putting pressure on Merkel and French President Francois Hollande to agree when they meet tomorrow.
EADS is negotiating with Germany, France, Spain, the U.K. and the U.S. to back a merger with BAE that would create the largest civil aviation and defense company, with a combined market value of $45 billion. With France owning a direct stake in EADS and the U.K. able to veto any change of ownership, Enders must walk a fine line not to alienate the governments, while loosening their grip as stakeholders.
Enders has spent months trying to piece together the combination with BAE. The companies were putting the finishing touches on a plan to present to governments for approval when Bloomberg News reported the talks on Sept. 12. EADS and BAE confirmed their plan the same day.
While Enders had been part of a failed merger attempt with BAE a decade ago, the latest rapprochement was borne out of defeat. Enders and his counterpart at BAE, Ian King, met after their Typhoon warplane failed to win an $11 billion contract in January. India instead selected Dassault Aviation SA, a humiliating loss at the hands of a far smaller rival that thus far had failed to secure a single export for its Rafale jet.
Discussions about defense cuts in Europe, and how the two companies could cooperate, grew into a plan for an outright combination, people familiar with the talks said. While strategists initially weighed a takeover of BAE, that plan was dropped because the U.K. government would have been unlikely to agree to a Franco-German purchase, said two people, who asked to remain unidentified because the considerations were private.
In total, executives spent five months exploring a combination, with teams of executives and advisers shuttling between London and Munich to hammer out a deal, the people said. The German government created a cross-ministry working group to explore the political ramifications, with Lars-Hendrik Roeller acting as Merkel’s adviser, two of the people said.
Enders sought to drum up support in a letter to employees this week, while putting pressure on governments to back his plan. The shareholder pact created in 2000 to balance French and German interests would fall by the wayside in a merger, he said. Instead, EADS would hold 60 percent of the enlarged group and BAE the rest, while the U.K., Germany and France would get special shares to represent their national interest.
“The point is that this is a friendly deal,” said Zafar Khan, an analyst at Societe Generale in London. “Management will argue very hard that the expanded global platform will create a growth opportunity that will lead to job creation in the home nations.”
EADS rose as much as 0.6 percent to 26.10 euros and traded at 25.88 euros at 12:01 p.m.in Paris, a 13 percent discount to the company’s share price the day before its negotiations with BAE became publicly known. BAE declined as much as 0.8 percent to 338 pence.
While Enders acknowledged the proposed combination may have caught investors by surprise, there were subtle hints the CEO was plotting a transformation even before he took over in June. He made clear from the get-go that he would shake up EADS, telling employees in a memo that he’d travel the company to “fuel changes in strategy, structure and organization.”
Under British takeover law, EADS now has until Oct. 10 to formalize its offer, abandon the bid, or request to extend the deadline. Enders and King are racing to put the accord together. EADS is concerned that BAE may attract an interloper, a person familiar with the process said. Still, the thinking at EADS is that the U.S. government will support the deal on the grounds that it will foster more competition than a merger between BAE and one of its U.S. rivals, the person said.
Largely shielded from the public glare at the Farnborough Air Show this year in July, Enders spent the summer months weighing the finer points of the combination with BAE, said one of the people. He kept in frequent touch with King, a Scottish accountant by training who is in many ways the opposite of the adventurous Enders.
King, who would likely lead the combined defense business, first began working with Enders in the 1990s when the former was finance director of Marconi Electronics Systems, a supplier to the Panavia Tornado and Eurofighter Typhoon fighter programs that Enders was involved in. Since then, the two have had regular meetings as they climbed the corporate ladder.
Enders’s distaste for too much meddling stems from his experience from the failed attempt in 1999 to merge Germany’s DaimlerChrysler Aerospace, where he worked, with British Aerospace. The British company, now BAE Systems Plc, abandoned the discussions amid political wrangling and opted instead to buy General Electric Co.’s Marconi defense unit, leaving the Germans with no option but to build EADS with the French.
Since that episode, Enders has earned a reputation for chafing at outside interference. Still, his focus for now is to avoid butting heads with the political powers whose support he requires to realize his decade-old merger ambitions.
Merkel has said she will discuss the proposal with Hollande when the two meet in southern Germany tomorrow, their first direct encounter since EADS and BAE unveiled their plans. The two will not make any decision relating to the plan, her spokesman, Steffen Seibert, told reporters in Berlin today.
Britain has 34,800 jobs to protect in the U.K. Germany has already seen the move of EADS’s joint headquarters in Munich to Toulouse in southern France, and there is a creeping concern among politicians that the Airbus aircraft unit is pooling more work in France. France, which owns 15 percent of EADS and a board seat, would see its holding shrink to a 9 percent stake.
While talks with the governments are inching forward, French negotiators led by the finance ministry are pushing back on the grounds that they have the most to lose, a person familiar with the process said. Informed in mid-July, several ministries of Hollande’s new government are grappling with their first major industrial challenge as they test their will to create champions with Germany and develop European defense.
“Once again, the French government risks being a stumbling block,” said Nick Cunningham, managing partner at Agency Partners in London. “Maybe over time, the French government will sell its shares but it won’t happen soon.”