FRANKFURT/BERLIN German state-controlled development bank KfW will buy a 7.5 percent stake in Airbus parent EADS EAD.PA from Daimler AG (DAIGn.DE), maintaining a Franco-German balance of influence over the aerospace company.
The agreement on EADS comes after months of negotiations with the German government, during which Daimler urged Berlin to find a solution so it could focus on its core car and truck businesses and reduce the drag on earnings from EADS.
"Due to the strategic importance of EADS, the government has decided to safeguard the German-Franco balance through its investment by KfW," Daimler finance chief Bodo Uebber said in a statement on Thursday.
Daimler, one of the founders of EADS, said it will sign a letter of intent on the deal with KfW by year end, setting a purchase date for 2012. The deal will leave Daimler with 7.5 percent of EADS, plus voting rights for a further 7.5 percent held by a consortium of financial investors.
Daimler did not say how much KfW would pay for the stake, which has a market value of about 1.28 billion euros ($1.7 billion).
The deal had been flagged by a source who told Reuters on Wednesday Germany was set to retain its influence over EADS after Chancellor Angela Merkel's junior coalition partner dropped its objections.
"Independent of this decision, the federal government is sticking with its policy of limiting and reducing the state influence on private companies," Germany's economy ministry said in a statement.
It said it would examine the possibility of further privatizations of Deutsche Telekom AG (DTEGn.DE) and Deutsche Post AG (DPWGn.DE), former state monopolies in which Berlin still holds a stake.
KfW owns about 17 percent of Deutsche Telekom and just over 30 percent of Deutsche Post.
BALANCE OF POWER
EADS was founded in 2000 from a merger of French, German and Spanish aerospace interests, with Paris and Berlin guaranteed equal influence and a shareholder pact giving joint strategic control to Daimler and France's Lagardere SCA (LAGA.PA).
Maintaining a fragile internal power balance has been a sensitive topic ever since.
The prospect of a Daimler pull-out had raised questions over the future of the pact, which has clauses designed to protect national security interests.
The head of Airbus said Germany's planned purchase of a stake in parent EADS was a step in the wrong direction and there was no need for more state influence in the company.
"We don't need more state shareholders and we don't need more state influence, but rather less," Thomas Enders told newspaper Financial Times Deutschland, in an article preview made available on Thursday.
Daimler said it agreed with Berlin to hold talks in the near future about the long-term structure of the consortium which owns 7.5 percent of EADS, which includes banks such as Deutsche Bank AG (DBKGn.DE) and Goldman Sachs Group Inc (GS.N) as well as several German states.
"The shared understanding is that the investor consortium should fundamentally continue to exist," Daimler said.
EADS earlier posted third-quarter results that showed a delay to its A350 jetliner had trimmed profits, although they still beat expectations. Its shares were up 4 percent by 1457 GMT.
($1 = 0.736 Euros)
(Editing by Will Waterman and David Holmes)