June 12 (Bloomberg) -- BAE Systems Plc, Europe’s largest defense company, nominated former U.K. business-lobby executive Roger Carr as chairman to replace Dick Olver, who drew investor ire last year over a failed merger with EADS.
Carr, currently chairman of British Gas parent company Centrica Plc, will join BAE’s board on Oct. 1 and take over as chairman in the first quarter of next year, the London-based company said in a statement today. Olver’s term was set to expire in May. Carr, 66, stepped down earlier this month as head of the Confederation of Business Industry.
Olver, who joined BAE’s board as chairman in 2004 and helped see the company through allegations of illicit business dealings in Saudi Arabia, met opposition last year from investors including largest shareholder Invesco Ltd. because of merger talks with European Aeronautic, Defence & Space Co. The combination eventually failed amid government opposition. Olver defended the plan that Invesco said lacked strategic rationale.
“The big challenge is dealing with the decline in BAE’s major markets in the U.K. and U.S. and trying to find new opportunities in the international markets,” Zafar Khan, a London-based analyst at Societe Generale SA with a sell rating on the stock, said by phone. “BAE start from a strong position, but they face competition from everybody else.”
BAE is “very well respected in many international markets,” Carr said in an interview. “They will continue to do well, albeit in economies that are spending less on defense, and that means cost has to be managed and innovation has to be managed.”
Carr will need about 100 days after taking his new role to study BAE and consult with shareholders to “make an informed judgment on the health and status of the business and possibly the future,” he said. Ensuring that BAE is in a strong position when the defense market rebounds will be a priority, he said.
Divisional “diversity is clearly no bad thing, provided it leverages core competence and can be in scale,” he said. BAE’s online-security business is a unit offering growth prospects also outside defense markets, he said.
The company doesn’t have to look into a “rear-view mirror” after the collapse of the EADS merger effort, Carr said. BAE has a “fine independent future.”
BAE fell as much as 1.1 percent and was trading down 0.8 percent at 389.4 pence at 3:52 p.m. in London. That pared the stock’s gain this year to 16 percent, valuing the company at 12.6 billion pounds ($19.8 billion). The stock has advanced an average of about 7 percent a year since Olver joined BAE in mid-2004.
Carr was unanimously chosen by the selection committee, said Nick Rose, the senior independent director at BAE who led the search. “His skills, reputation and relationships with investors and government ministers will be of considerable value to the company,” Rose said in the statement.
Centrica said separately today that Carr will leave his post as chairman next year.
Carr joins as BAE undertakes a 1 billion-pound share buyback while the company’s future in its largest market, the U.S., is unsettled because of questions over long-term arms spending. The U.K. also is gearing up for a new strategic defense review, due in 2015.
“The next question will be whether this will start the ball rolling on further management change,” Roger Johnston, an analyst at Edison Investment Research said in a note. While continuing negotiations with Saudi Arabia over Typhoon fighter sales would make it “foolish” to replace chief executive Ian King, such plans could materialize after, he said.
BAE has a “strong management team,” Carr said.
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