September 26, 2012 / 8:25 AM / 5 years ago

EADS warns against big state role in BAE merger

BERLIN/PARIS (Reuters) - With government approval imperative, EADS boss Tom Enders took the case for the company’s $45 billion planned merger with BAE Systems (BAES.L) to German lawmakers on Wednesday, making clear his belief in reducing state influence in the company.

Visitors look at aircraft models at the EADS booth during the ILA Berlin Air Show in Selchow near Schoenefeld south of Berlin, September 13, 2012. REUTERS/Tobias Schwarz

EADS EAD.PA has factories across Germany, France, Spain and Britain, and the deal, which would dilute their influence, has sparked government concerns.

Pulling off Europe’s biggest defense deal in a decade will require Enders win over not only the French and German governments, but other shareholders as well.

With an October 10 deadline to announce whether it proceeds and EADS’ value down almost 4 billion euros since news of the talks broke, the former German paratrooper is on the mission of his career.

Nicknamed “Major Tom”, Enders has a reputation for being direct and uncompromising. Yet he appeared to take a careful tone on Wednesday, while still making his hopes for an EADS free of political influence remained clear.

“We want to create a company that is internationally much more successful, that draws new investors,” Enders said after briefing the German parliament’s Economic Affairs Committee.

“There are many examples to prove that companies in this sector and of this size should not necessarily be subject to state involvement,” he told reporters.

He told lawmakers in Berlin that any state role had to be limited for the combined company, set to be the world’s largest aerospace and defense group, to be competitive.

Lawmakers at the parliamentary committee hearing told Reuters that Enders had made no guarantees about German jobs. EADS has 50,000 employees in Germany and 133,000 worldwide.

At times frustrated in the past with the political constraints of EADS, Enders has clashed with German and French governments before and has publicly scolded German Chancellor Angela Merkel’s government over funding for the A400M military transport plane.

Lawmakers said, however, that Enders adopted a diplomatic approach in his 90-minute appearance in front of the committee, possibly realizing there is little to gain from backing Merkel into a corner.

In a show of openness, he said he was ready to talk to the German government about any reservations it had.


Deputy Economy Minister Hans-Joachim Otto, who attended the committee hearing, told reporters it was still an open question whether the deal would go ahead and said Germany had to protect national security and jobs.

“It is about ‘if’ as well as ‘how’,” said Otto, a member of the pro-business Free Democrats (FDP) who share power with Merkel’s conservatives.

“It is a very complicated plan that throws up advantages and disadvantages, risks and chances.”

“We know that there is some time pressure but I want to say clearly that rigorousness comes before speed,” Otto said.

He also appeared to take a swipe at France, saying “too much state influence in EADS in past years has done more harm than good”.

A French government source told Reuters on Wednesday that France wants to remain a shareholder in EADS and retain influence over the group’s decision-making in any merger with BAE. [ID:nL5E8KQC19]

“France wants to remain in EADS’ capital,” the source said, speaking to Reuters on condition of anonymity. “We want to keep influence over the key decisions.”

“We can imagine several possible formulas,” the source added, referring to both shareholdings and board composition.

The comment underscores the challenge faced by Enders, who made plain in a letter to staff last week that getting the politics of the deal right was crucial.

“We are currently in constructive and advanced discussions with all relevant governments and are trying to accommodate their concerns and national security interests,” he said.

“Good governance is a key prerequisite for both companies, it’s the ”go“ or ”no go“ for this project.”

The French state directly owns 15 percent of EADS and French media group Lagardere (LAGA.PA) also owns a stake.

Germany holds no direct stake in EADS but has discussed buying part of carmaker Daimler’s (DAIGn.DE) 15 percent holding through state development bank KfW.

Some conservatives in Merkel’s coalition want to ensure that Germany keeps as much influence as France it the latter retains its holding.

“In line with the German-French balance, I think that would be sensible,” said Georg Nuesslein, of Bavaria’s Christian Social Union.

Merkel and French President Francois Hollande discussed the merger last weekend. Hollande said he wanted assurances on jobs, industrial strategy and defense activities.

EADS and BAE have said they will offer the governments of France, Germany and Britain a “golden share” in the new company, allowing them to block any future hostile takeover.

However, golden share arrangements in several companies have been legally challenged in the European Union.

German Greens lawmaker Kerstin Andreae, also a member of the Economic Affairs Committee, said the golden share issue was unresolved.

“More questions were left open than answered. There are disagreements between the government and Tom Enders on the question of the valuation of the golden share which could not be cleared up,” Andreae said.

There also appeared to be a split over a proposed 60-40 merger weighting between EADS and BAE, with Otto saying the valuation ratio looked “disadvantageous” to EADS while Enders said it was fair. Others have also expressed dissatisfaction over the ratio. ID:nL5E8KP5YE]

Additional reporting by Tim Hepher; writing by Madeline Chambers and Jason Neely; editing by Gareth Jones and James Regan

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