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Germany fears French takeover of EADS
By VANESSA FUHRMANS
Germany's government is weighing a variety of ways to preserve its influence at Airbus parent EADS, including a partial purchase of Daimler AG's stake in the European aeronautics company or creating a so-called golden share, but faces numerous hurdles in pursuing any of them.
German Chancellor Angela Merkel's cabinet met Wednesday to discuss how to remain a counterweight to French power at European Aeronautic Defence & Space Co. as Daimler seeks to divest at least half of its 15% shareholding in the group. Although multiple possibilities, including the debated golden-share option, are on the table, said German Economics Minister Rainer Brüderle after the meeting, a Franco-German balance of power in EADS' shareholder structure must "remain guaranteed."
Finding a solution is likely to cause Ms. Merkel political aggravation for months, given the many legal or diplomatic challenges most options involve. The most straightforward, a government purchase of the stake, faces heady resistance from the chancellor's coalition partners, the Free Democrats, who oppose state ownership in companies. A private sale appears equally difficult: In the five years since Daimler first began reducing its EADS stake, the German government has tried but failed to find a German industrial investor to take over the shares.
Like France, Germany is eager to continue to exert control at EADS because of the economic and technological importance of its military and civilian aircraft operations.
Though Germany doesn't own a stake directly in EADS, it wields powerful influence via Daimler's 15% shareholding, plus another 7.5% owned by a German banking consortium. Likewise, France controls an equal share of public and private interests in the aerospace group. Were Germany to lose that parity, government officials fear that France would gain the upper hand in boardroom decisions.
As a result, government officials have revived the idea of a golden share as another possibility. Such a move, promoted in the past by EADS Chief Executive Louis Gallois, would give Germany and France a nominal share with effective veto rights over strategic decisions.
But with few exceptions, the EU rules prohibit golden shares and the European Commission has successfully blocked most efforts in recent years. EU officials argue that golden shares hinder the free movement of capital by restricting rights of existing shareholders.
"They would have to demonstrate a high strategic or security interest" to avoid EU regulatory roadblocks," said Denis Waelbroeck, a partner and EU competition-law specialist at law firm Ashurst in Brussels. Though Germany might attempt to base a case on EADS's role as being in the country's defense interests, "the case law is very strict," he said.
Some government officials have suggested German states with a large number of EADS jobs, particularly Bavaria, where some 19,000 EADS employees work, could help finance a deal. Another option would be for EADS to initiate a share buyback, purchasing part of the Daimler stake and, over time, an equal amount of shares from France or French media group Lagardere SCA, which owns 7.5% in the aeronautics giant.
Such a plan would likely cost EADS more than five billion euros ($6.9 billion), a move that could be difficult to absorb and justify to other shareholders as the company contends with depressed earnings and cost overruns from Airbus's A380 superjumbo aircraft. A German public-private banking consortium that took over another 7.5% of shares from Daimler in 2007 is also expected to eventually shed that stake, adding to the cost and complexity of such a move.
Daimler and the banking consortium agreed nearly a year ago to extend their shareholding arrangement in EADS until the end of 2012. But the shareholding has weighed on Daimler earnings in recent years, including a €261 million hit to its 2010 profit, and the company officials have signaled the stake isn't core to its main auto- and truck-making activities.
http://online.wsj.com/article/SB10001424052748703775704576162080985105642.html
By VANESSA FUHRMANS
Germany's government is weighing a variety of ways to preserve its influence at Airbus parent EADS, including a partial purchase of Daimler AG's stake in the European aeronautics company or creating a so-called golden share, but faces numerous hurdles in pursuing any of them.
German Chancellor Angela Merkel's cabinet met Wednesday to discuss how to remain a counterweight to French power at European Aeronautic Defence & Space Co. as Daimler seeks to divest at least half of its 15% shareholding in the group. Although multiple possibilities, including the debated golden-share option, are on the table, said German Economics Minister Rainer Brüderle after the meeting, a Franco-German balance of power in EADS' shareholder structure must "remain guaranteed."
Finding a solution is likely to cause Ms. Merkel political aggravation for months, given the many legal or diplomatic challenges most options involve. The most straightforward, a government purchase of the stake, faces heady resistance from the chancellor's coalition partners, the Free Democrats, who oppose state ownership in companies. A private sale appears equally difficult: In the five years since Daimler first began reducing its EADS stake, the German government has tried but failed to find a German industrial investor to take over the shares.
Like France, Germany is eager to continue to exert control at EADS because of the economic and technological importance of its military and civilian aircraft operations.
Though Germany doesn't own a stake directly in EADS, it wields powerful influence via Daimler's 15% shareholding, plus another 7.5% owned by a German banking consortium. Likewise, France controls an equal share of public and private interests in the aerospace group. Were Germany to lose that parity, government officials fear that France would gain the upper hand in boardroom decisions.
As a result, government officials have revived the idea of a golden share as another possibility. Such a move, promoted in the past by EADS Chief Executive Louis Gallois, would give Germany and France a nominal share with effective veto rights over strategic decisions.
But with few exceptions, the EU rules prohibit golden shares and the European Commission has successfully blocked most efforts in recent years. EU officials argue that golden shares hinder the free movement of capital by restricting rights of existing shareholders.
"They would have to demonstrate a high strategic or security interest" to avoid EU regulatory roadblocks," said Denis Waelbroeck, a partner and EU competition-law specialist at law firm Ashurst in Brussels. Though Germany might attempt to base a case on EADS's role as being in the country's defense interests, "the case law is very strict," he said.
Some government officials have suggested German states with a large number of EADS jobs, particularly Bavaria, where some 19,000 EADS employees work, could help finance a deal. Another option would be for EADS to initiate a share buyback, purchasing part of the Daimler stake and, over time, an equal amount of shares from France or French media group Lagardere SCA, which owns 7.5% in the aeronautics giant.
Such a plan would likely cost EADS more than five billion euros ($6.9 billion), a move that could be difficult to absorb and justify to other shareholders as the company contends with depressed earnings and cost overruns from Airbus's A380 superjumbo aircraft. A German public-private banking consortium that took over another 7.5% of shares from Daimler in 2007 is also expected to eventually shed that stake, adding to the cost and complexity of such a move.
Daimler and the banking consortium agreed nearly a year ago to extend their shareholding arrangement in EADS until the end of 2012. But the shareholding has weighed on Daimler earnings in recent years, including a €261 million hit to its 2010 profit, and the company officials have signaled the stake isn't core to its main auto- and truck-making activities.
http://online.wsj.com/article/SB10001424052748703775704576162080985105642.html
