EADS: We are the Franco-German National Champion

The world is weird. Being on the receiving end of American politicians' protectionist ire over the awarding of a $35B US Air Force contract to it instead of Airbus, EADS is itself contemplating measures to ensure that it doesn't come under the thrall of foreigners. State investors from the UAE and Russia have taken 3.1% and 5.0% stakes, respectively, in EADS. The fear of EADS is that US politicians may further become wary of relying on a supplier with substantial ownership by perhaps less-than-friendly authoritarian regimes. To avert this possibility, EADS is now contemplating ways of making itself less vulnerable to takeover by other interests. The following article is from the Financial Times; I have previously posted on the controversy over awarding a large US defense contract to a foreign bidder and the FT has more on recent political rhetoric [1, 2].

France and Germany are finalising changes to EADS’ corporate by-laws to prevent foreign investors building significant stakes in – or even taking over – Europe’s flagship aerospace and defence company.

The move comes at a sensitive time for the Franco-German group, which late last week secured a breathtaking entry into the US defence market with a $35bn contract for its Airbus tanker-aircraft.

Some US politicians have said giving the contract to a foreign company could have dire security implications – a frenzy that could mount if EADS’ Russian or Middle Eastern shareholders were to increase their holdings.

Dubai International Capital, a sovereign wealth fund, bought 3.1 per cent last summer and VEB, a state-controlled Russian bank, took a 5 per cent stake in December.

But the French government, French media group Lagardère, and German carmaker Daimler, which together control 45 per cent of EADS, are planning to restrict any investor deemed predatory from owning more than 15 per cent.

That level – a working number that might change – is integral to two models the Franco-German core shareholders are working on to see whether EADS can be given additional protection against a foreign takeover.

This follows last summer’s agreement between Nicolas Sarkozy, the French president, and Angela Merkel, the German chancellor, to consider issuing “golden shares” to Paris and Berlin to take pressure off the core trio to uphold their stakes.

New takeover defences could herald adjustments to the shareholders’ pact, which enshrines German and French stakes at 22.5 per cent a piece. Lagardère has been seen as a probable seller of its 7.5 per cent stake.

People close to the talks said the first option would see the May 26 shareholders’ meeting change EADS’ articles of association to give Paris and Berlin a golden share each, enabling them to block stakes above 15 per cent.

The golden shareholders would justify their privilege as vital to national security and thus hope to evade sanction from the European Union’s high court, which has forced numerous EU countries to repeal similar measures.

The second, and less controversial, option would give Netherlands-registered EADS a poison pill-style defence that has been adopted – if never used – by other Dutch companies, such as Philips, the electronics giant.

The annual meeting would empower EADS’ board to issue new stock to an allied special-purpose foundation to dilute the stake of any predatory shareholder.

People familiar with German thinking said Berlin and Daimler favoured option one and were waiting for Paris and Lagardère to formulate a joint position. People close to the talks in France said Paris largely agreed with Berlin.


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