EADS Investor Lagardere Calls BAE Terms Unsatisfactory

EADS Fails to Convince Investor Lagardere of Merits of BAE Deal
European Aeronautic, Defence & Space Co. has yet to show how the planned transaction will create value, Paris-based Lagardere, which has a 7.5 percent stake, said in a statement today. Photographer: Chris Ratcliffe/Bloomberg

European Aeronautic, Defence & Space Co. is under siege from investors about its proposed merger with BAE Systems Plc, with major shareholder Lagardere SCA calling the combination’s terms “unsatisfactory.”

EADS must show how the planned transaction will create value, Paris-based Lagardere, which has a 7.5 percent stake, said in a statement today. Lagardere Chief Executive Officer Arnaud Lagardere is the chairman of EADS.

With just 10 days left until EADS and BAE want to present a formal merger agreement, the two sides are under pressure to appease stakeholders. France wants to keep some political control, and German lawmakers have criticized the ownership structure of the new company. EADS has fallen 17 percent since announcing the plan, bruising investors who have lost a combined 4.1 billion euros ($5.26 billion) in market value.

“Lagardere calls on the management of EADS to undertake, without delay, the indispensable re-examination of the project to combine EADS and BAE, to better take into account the interest of all the French controlling shareholders of EADS,” the company said in the statement today.

European Assets

The publisher is one of EADS’s main investors, alongside Germany’s Daimler AG and the French state. Together, they control 44 percent of the company. The publishing company’s 7.5 stake has lost 310 million euros in value since the announcement. Lagardere, who was appointed chairman this year, has said that he eventually wants to retreat from EADS.

EADS’s shareholder structure, created when the company was formed in 2000 from the combined aerospace assets of France, Germany and Spain, gives it two controlling shareholders who have both publicly said they have no interest in the aerospace industry. Daimler is a carmaker and Lagardere, which has voting control of its own 7.5 percent stake as well as the French state’s 15 percent stake, is a media conglomerate.

“We have made very clear that we want to focus on our automotive business,” Daimler Chief Executive Dieter Zetsche told journalists at the Paris Auto Show last week. “It’s not our key responsibility to define the future strategy of the aerospace industry.”

‘Room to Maneuver’

EADS rose as much as 20 cents, or 0.8 percent, to 24.87 euros, while BAE advanced as much as 1.3 pence, or 0.4 percent to 326.4 pence in London. EADS is based in Toulouse in southern France, which is also home to Airbus SAS, its biggest unit.

“I don’t see this statement as a deal breaker,” Stephan Boehm, an analyst at Commerzbank in Frankfurt, said about Lagardere’s release. “The comments are in line with what Daimler has already communicated. I think there is still room to maneuver and to come up with a slightly more favorable ratio for EADS shareholders.”

Lagardere originally owned 15 percent of EADS before selling half its stake in 2005, along with Daimler. Arnaud Lagardere’s father, Jean-Luc, started his career as an aerospace engineer and kept a lifelong affection for aviation. He died unexpectedly in 2003 at the age of 75.

Arnaud’s father was a pioneer in the creation of EADS as it exists today. After Daimler bought Spain’s state-owned Construcciones Aeronauticas SA to form a company that combined German and Spanish interests in Airbus and the Eurofighter war-plane business, Lagardere worked out a deal with the French government to merge state-owned aerospace company Aerospatiale with Lagardere’s Matra Defense division.

Aviation Pioneer

The merger was a quick way to privatize Aerospatiale and make it palatable to the Germans as a partner. The young Lagardere had no aerospace training or background and spent his career focused on Lagardere’s media interests. He skipped this year’s annual general meeting where he was elected chairman, and he has said that he wants to remain a stakeholder until the Airbus wide-body A350 had proven itself.

EADS and BAE first announced Sept. 12 their plan to merge the companies in a deal that would give EADS investors 60 percent of the new company and those of London-based BAE the rest. Government shareholders will get a shares that gives them special rights, though EADS CEO Enders has said he wants to limit the role of government involvement in the new company.

Enders and his counterpart at BAE, Ian King, wrote joint articles that appeared in German, French and U.K. newspapers today to drum up public support. The companies combined would be a better fit than the sum of their parts, and EADS and BAE would together reap synergies and exploit businesses that are beyond each company’s individual reach, they said.

Hopes for Shares

“We believe Lagardere would like to see the share price back around 31 euros, which would be a better level to exit,” said Edward Stacey, London-based analyst at Espirito Santo Investment Bank. “EADS and BAE will have to present the merger terms and hope the benefits of the deal drive the share price back up to convince European and British shareholders to support the deal.”

The two companies will be looking for the backing of stakeholders before laying out the finer details of their proposal, including the composition of the board, executive appointments and where key businesses will be based. Governments remain guarded for now.

“The proposal of a EADS-BAE merger is an attractive and interesting one, but its consequences are very complex,” French Defense Minister Jean-Yves Le Drian told journalists today in Muelheim, Germany, after meeting his German counterpart. “We, the French and German ministers, are making sure to assess the situation very frankly, to reach a common position. We’re also asking ourselves the questions” concerning potential veto rights on strategic decisions and on location of headquarters, he said.

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