Germany, France may seek combined 27 percent stake in EADS-BAE: report

Reuters Business News
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Posted: Sep 27, 2012 5:58 PM

BERLIN (Reuters) - Germany and France may seek a combined 27 percent stake in a company to be formed from a planned merger of European aerospace group EADS <EAD.PA> and British defense contractor BAE Systems Plc <BAES.L>, but Britain would be opposed, the Financial Times Deutschland said.

The stake would create a shareholder counterweight with the power to block decisions by the management of the new company, the newspaper said, citing sources familiar with the matter, in an article due to appear in its Friday edition.

The move could also prove a deal breaker since EADS boss Tom Enders has repeatedly said he wants to reduce state influence in a combined company and Britain and the United States remain wary of further state involvement.

The Financial Times Deutschland said the idea enjoys French support, but France has so far proved unwilling to be pressured into trading concessions for the sake of a common position with Germany, given the mismatch of shareholdings.

It was an open question whether Germany would approve a proposal, the paper added, quoting industry sources.

A separate article to be published in Friday's edition of Die Welt newspaper said German Chancellor Angela Merkel's government would insist on parity with France in the new company in order to safeguard its interests.

Quoting German government sources, Die Welt said Berlin feared losing out to France and Britain in the relocation of EADS facilities under the terms of the merger deal.

"For the chancellor's office and the economy ministry it is important that balance is maintained," said the article, adding that the government had submitted its request to France.

France owns 15 percent of EADS, the maker of Airbus jets, and wants to retain its right to influence group strategy, currently conducted through a complex pact with 7.5-percent shareholder Lagardere <LAGA.PA>.

Germany is not a direct shareholder, but sees the transaction as a chance to tighten its grip on a stake currently held by Daimler AG <DAIGn.DE> and a group of banks.

The article in Die Welt said Germany was ready to buy up the shares held by Daimler and the group of banks via the state development bank KfW if France kept its own stake intact.

Last Saturday, France and Germany agreed at a summit to consult on the merger talks, but French President Francois Hollande avoided pledging to create a common position between the two countries, despite earlier German hopes of a joint initiative.

On paper, the idea of a core 27 percent shareholding suggests France would buy Lagardere's 7.5 percent stake and the German government would buy all of Daimler's voting shareholding of 22.5 percent. This would leave each side with a diluted stake of 13.5 percent under the proposed merger terms.

But two European defense experts who asked not to be named said this would run up against tough resistance from Britain and the United States while hampering the companies, and nobody has yet come forward to claim ownership of the scheme.

EADS declined to comment.

The planned $45 billion merger aims to create the world's biggest defense and aerospace company. It would dilute the influence of the French, German and Spanish governments, prompting negotiations over their future roles.

EADS and BAE have said they will offer the governments of France, Germany and Britain a "special share" in the new company, allowing them to block any future hostile takeover, but are determined to prevent further meddling in other management decisions.

(Reporting by Gareth Jones, Edward Taylor, Tim Hepher. Editing by Andre Grenon and Chris Gallagher; gareth.jones@thomsonreuters.com; +49 30 2888 5214; Reuters Messaging: gareth.jones.thomsonreuters.com@reuters.net)