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TEXT-Fitch: Shareholder pact unlikely to change governance at EADS
November 23, 2012 / 12:40 PM / 5 years ago

TEXT-Fitch: Shareholder pact unlikely to change governance at EADS

(The following statement was released by the rating agency)

Nov 23 - A reported plan to streamline the ownership structure of EADS is unlikely to materially improve corporate governance issues at the aerospace company, Fitch Ratings says. The changes will not alter the perception that EADS is a state-controlled corporation, which restricts its chances of winning large export defence contracts, but they would bolster the finances of major shareholder Daimler.

The complex arrangement of state control at EADS, through both direct and indirect shareholdings, was a key factor in the collapse of EADS’ attempted merger with BAE Systems in September. It is also a major barrier to EADS winning defence contracts as a prime contractor in the US. The details of a potential new ownership pact between the French and German governments are still unclear. We do not, however, expect that a change in the shareholding structure will reduce state influence to a level that would remove it as an obstacle in future sector consolidation or in tendering for large defence contracts in markets like the US.

Germany effectively controls 22.5% of EADS through Daimler (15%) and a consortium of private and public investors (7.5%), while France controls the same percentage through a 15% direct holding and a 7.5% stake held by Lagardere. Press reports indicate that a new pact could result in the French and German governments each directly holding a 12% stake in EADS, with Daimler and Lagardere exiting the share register or reducing their stakes, while the Spanish government would hold on to its current 5.5% stake.

Talks have reportedly been driven by Daimler’s and Lagardere’s long-term desire to sell their stakes. Whilst we do not rate Lagardere, for Daimler the sale will be positive for its finances in the short term by bolstering the company’s already solid net cash position.

This would not, however, lead to an upgrade for Daimler. The company’s rating is primarily dependent on its operational performance and its ability to demonstrate that it has reduced the cyclicality of its truck business. In addition, it is unclear how much of its stake Daimler will eventually sell, what price it will achieve and whether it will reinvest the proceeds of any sale in its business or return the cash to shareholders.

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