Enders Seeks to Overcome Berlin Wall to Reach BAE Systems

EADS CEO Tom Enders
European Aeronautic, Defence & Space Co. Chief Executive Officer Tom Enders has said this week will be “decisive” as he tries to wrap up negotiations. Photographer: Munshi Ahmed/Bloomberg

As Germany celebrates reunification today, Tom Enders is trying to tear down his own Berlin Wall.

The chief executive officer of European Aeronautic, Defence & Space Co., himself a German native, has come up against resistance from the German government as he pushes for backing for a merger with BAE Systems Plc. As Enders strives for an agreement by Oct. 10, Germany’s sticking points are job guarantees, centers of command and a balance of power with France, people familiar with the government’s position said.

Angela Merkel’s government is emerging as the side hardest to convince, as the merger triggers concerns about a company steered from London and Toulouse in France, where Enders moved the EADS headquarters against German resistance. Enders said Oct. 1 he’s not desperate to proceed with the BAE combination, signaling a willingness to abandon the plan if it becomes compromised by political interference.

“Hopefully Merkel can see the wider European interest in this,” said Charles Grant, director of the London-based Centre for European Reform. “I don’t see why the Germans are so reticent, because they’ve always been upset about the French domination or the French leadership at EADS.”

Germany wants to formulate an official position by the end of the week, said one of the people, who asked not to be identified because the talks aren’t public. Germany is seeking to maintain a balance of power with France, which owns a direct stake of 15 percent in EADS, said another person. The future centers of command are also being deliberated, they said.

Decisive Days

Leading negotiations on Merkel’s behalf is Lars-Hendrik Roeller, one of her closest advisers at the chancellory, said one of the people. His office has produced a paper that maps out Germany’s key positions, the person said. Talks continue and there are no insurmountable hurdles at this stage, he said. Roeller was unavailable to comment for this story.

Enders has said this week will be “decisive” as he tries to wrap up negotiations. The Oct. 10 date is set by U.K. takeover regulation, and Enders said he aims to make that deadline, though the companies would be able to seek an extension to win more time to negotiate.

Regulatory limitations have hamstrung Enders in addressing investor and employee concerns since Bloomberg first reported the discussions on Sept. 12, adding pressure on the companies to provide specifics within a week. EADS has fallen 14 percent since the merger was announced.

Germany celebrates the anniversary of the country’s political reunification in 1990, a national holiday that puts the political machine on hold and potentially delays Enders in his bid to rally political support in Berlin.

Exorcising Politics

Enders, who is trying to rid EADS of political interference that has defined the company since its creation in 2000, has had a cool reception in Berlin since embarking on his promotional tour after announcing the merger three weeks ago.

The Ministry of Economics has listed objections including a lack of job security and synergies and how the merger would affect Daimler AG’s plan to sell a stake in EADS to state-owned bank KfW. Before Enders pooled the EADS headquarters in Toulouse this year, the company was equally split between Paris and Munich, with the chief financial officer residing in Munich and the CEO shuttling back and forth each week.

Bavarian Economics Minister Martin Zeil said yesterday that he’s seeking assurance the 15,000 jobs and facilities in Bavaria are protected. He supported the merger, saying it will create a stronger global competitor. Enders said Oct. 1 that cutting thousands of jobs is not part of his concept, and that German sites would benefit from the global stage BAE offers.

Symbolic Incentive

The U.K. government has signaled it would be content with a U.K.-centered defense business and so-called golden share to protect the company from takeover, with France seeking a 9 percent holding in the combined company. Germany is still debating whether it will seek a shareholding to match France.

“A symbolic incentive for the German government could be a headquarters for the space and information system elements of a merged company,” said Henrik Heidenkamp, a German fellow at the Royal United Services Institute in London. “This would match the significant share of EADS’s high-tech research already conducted in Germany,”

Germany’s stance reflects concern that Enders has not protected national interests. While the Airbus SAS aircraft-making unit has major assembly lines in Hamburg, Toulouse remains the main hub and produces the largest aircraft. Enders has sparred with Peter Hintze, the government official in charge of aerospace policy, who has lamented a creeping move of work from Hamburg to Toulouse.

Fast Moves

After taking over in June, Enders acted swiftly to consolidate EADS’s power centers in Toulouse, moving the chief financial officer position that was previously in Munich to France alongside with the human resources director. Under the merged structure, the CFO position would likely go to BAE Finance Director Peter Lynas, people familiar with the plan have said, depriving Germany of a key post it previously held.

“‘The Germans feel a bit isolated, a bit worried about there being a France-U.K. axis,’’ said Zafar Khan, London-based analyst at Societe Generale.

Germany’s key interest is little changed from the position it has held during the 12 years of EADS’s existence: keeping a balance with the French. While the German state never held shares in EADS, carmaker Daimler served as a proxy, holding a stake equivalent to that owned by the French government and publisher Lagardere SCA. The EADS shareholder agreement holding that balance would be dissolved under the merger plan.

‘‘The concern is that German interests will become a mere adjunct in what will essentially evolve into an Anglo-French company, geared to serving Anglo-French interests,” said Sarah Raine, a fellow with the German Marshall Fund of the U.S. in Berlin. “Securing German government support should still be manageable, but the right people will need to hear the right reassuring noises on the future direction.”

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