Government truce won't save EADS from state meddling-investors

LONDON Thu Dec 6, 2012 10:36am EST

LONDON Dec 6 (Reuters) - An accord at EADS won't end state meddling or bring in new investors who have so far avoided the aerospace group for its political risks, some of its independent investors said on Thursday.

They said the deal, which winds down a Franco-German power sharing accord and will increase the company's "free float" of readily tradeable shares, will not take EADS off the political agenda.

"EADS will always suffer from political interference just as Boeing and the other big U.S. aerospace companies do," said Neil Dwane, investment chief at Allianz Global Investors, one of the 20 largest investors in the company.

Shares in the Airbus maker rose by as much as 9 percent to 29.6 euros on Thursday, amid hopes a ceasefire between warring stakeholders could put the company in a better position to pursue flagship projects along commercial, not political, lines.

France may prove particularly loathe to give up its influence on EADS.

"Even if the government has less direct influence on the company at the board level, ultimately this is still France where you do get interference regardless," one London-based shareholder said.

"That's a discount that gets put on quite a few French businesses, to be honest. The influence might be significantly reduced but it's not gone entirely."

A revamped governance structure at the group will involve the appointment of a new chairman heading a mainly independent board and a gradual exit by core industrial shareholders that represented French and German interests.

"Anything which makes the company operate like a normal company, increases its free float and enhances the ability to leverage off their Airbus positioning, is positive," said Greg Bennett, a fund manager at Argonaut Capital Partners, which holds EADS shares.

German carmarker Daimler raised over $2 billion from offloading part of its stake on Thursday. It maintains 7.5 percent of EADS for the time being, matching a stake held by Lagardere, but both will be free to exit in 2013.

France and Germany have agreed to control 12 percent each of the voting rights, while Spain will hold 4 percent. Powers of veto held by France on matters such as board appointments have been cancelled.

POLITICAL RISKS

But brokers in France who had hoped the deal would prompt new investors to take an interest in EADS were still encountering "pushback" from institutions worried about political risks, the first shareholder said.

Though governments will no longer exert direct influence over the board, it would be naive to believe a rush of new investors would buy stakes having held back in the past because of the threat of political interference, some shareholders said.

"Obviously the best case would be there is no government shares ... but that is wishful thinking and you need to be realistic about what's achievable," said a second shareholder, speaking anonymously in line with his fund's policy. "This outcome is the best case out of what it was realistic to expect."

However, there were signs that former shareholders at ease with the company's political risks are turning back to EADS.

A third investor, who exited the stock when an ill-fated $45 billion merger plan with BAE Systems was first mooted in September, told Reuters he had started to rebuild his position.

He said he had been encouraged both by the deal and by reassurances that takeover plans were on ice at least until after a strategic review in mid-2013.

While unlikely to eliminate government interference entirely, investors said the new ownership set-up gave CEO Tom Enders greater powers to take decisions on where to cut costs or reallocate capital without fear of reprisal.

"The company has been executing very well lately but there's a lot to be done still," the second shareholder said. "They committed to buy back 15 percent of the shares next year and also to a very sustainable payout policy.

"Those are very good measures ... Now they just need to do a lot of hard work."

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