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The Globe and Mail

EADS vote signals historic changes for defence giant

‘EADS will now become a normal company,’ chief executive Tom Enders said Tuesday, on the eve of a shareholders’ meeting in Amsterdam.


Airbus SAS parent EADS faces the most far-reaching changes in its history as shareholders seek to balance French and German state shareholdings with tough new safeguards against political meddling.

Europe's largest aerospace group has been haunted by political pressures since its inception as an industrial counterpart to the euro currency in 2000, but is re-inventing itself to try to secure greater independence.

"EADS will now become a normal company," chief executive Tom Enders said on the eve of a shareholder meeting scheduled for Wednesday in Amsterdam.

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The meeting will scrap a shareholder pact that held the balance of power between French and German interests and will pave the way for the exit of industrial partners, French media firm Lagardère SCA and German car maker Daimler AG.

It will also give EADS its first mainly independent board and authorize a buyback of up to 15 per cent of its stock, plans for which have pushed EADS shares up 40 per cent this year.

The Easter vote follows a deal between France and Germany after Paris and Berlin failed to agree on a merger between EADS and Britain's BAE Systems PLC last year.

The changes also mark a turning point in industrial policy after Germany ditched opposition to direct state shareholdings, driven by its private partner Daimler's desire to concentrate on cars, and France surrendered key powers over EADS strategy.

However, the euro zone's two leading economies will remain influential as major defence customers and will have powers resembling a U.K.-style golden share to block hostile takeovers.

For Mr. Enders, who has overseen a dramatic pace of change since stepping up from running plane maker Airbus SAS last summer, the ability of European countries to use their leverage as customers rather than meddling as shareholders is a leap forward.

"The most important change is the dissolution of the shareholder pact that ruled EADS for the last 13 years and the de-coupling of shareholding and shareholder rights from corporate governance and operational control," he said.

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"The board of directors will be strengthened and become truly independent."

The agreement calls for France and Germany to hold 12 per cent of EADS each and Spain 4 per cent, while the free float of market shares will increase to 72 per cent from 50 per cent.

That involves higher direct state ownership than before, when France owned 15 per cent and Spain 5 per cent, but with greater clarity over who controls what. Analysts say the higher float has boosted sentiment towards Boeing Co.'s European rival.

After recent gains, EADS shares dipped 1 per cent on the eve of the meeting, the last potentially run by EADS chairman Arnaud Lagardère, who stayed away from the last AGM.

Denis Ranque, ex-head of French arms firm Thales Group, has been pulled out of a retirement spent sailing to succeed Mr. Lagardère, whose firm plans to sell its 7.5-per-cent EADS stake.

The changes come at a time when the dreams of greater European defence integration face continuing obstacles.

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EADS believes Europe's fragmented defence sector needs further consolidation for the continent to punch its weight against U.S. defence giants and Asian powers of the future.

But the failure to acquire BAE also left EADS hunting for a new strategy after previously trying to balance defence with the group's dominant civil activities at Airbus and Eurocopter Group.

"You could see two phases of consolidation," said Kepler Securities analyst Christophe Menard. "You could have the most interesting industry (global takeover) targets being taken by the Americans very rapidly and the European side taking a bit more time," he added.

Mr. Enders said in January EADS did not plan to attempt a repeat of the move on BAE, which was blocked by Berlin. But the deal's failure spurred a rethink of EADS' corporate governance and removed what many insiders saw as an obstacle to growth.

Executing the plan remains a complex task, meaning investors may have to wait through Easter for details of the buyback plan.

What would normally be a formality is in the case of EADS an exceptionally delicate operation, since the company must avoid triggering a clause under Dutch law that would trigger a full mandatory bid when allied investors collectively own 30 per cent.

Core shareholders currently hold 50 per cent but are exempt from the rule only as long as their pact is undisturbed.

Over the next week, the maker of French nuclear missiles must defuse its own elaborate power-sharing mechanisms without triggering an accidental nationalization.

To avoid a mandatory bid, any excess state shares over the target of 28 per cent will be warehoused without voting rights in a foundation in the Netherlands, where EADS is registered.

That will include a fifth of France's current stake of 15 per cent, raising the prospect that this €1-billion's ($1.29-billion U.S.) worth of shares could eventually be sold to help ease budget problems.

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