Shareholders Clinch Pact to Overhaul EADS Ownership


Nations in EADS agreed onthe biggest shake-up of the European aerospace group since itwas founded over a decade ago, opting after years of uneasycohabitation to put its board and most of its shares beyondpublic control.

The accord to wind down a complex Franco-Germanpower-sharing pact came weeks after talks broke down to mergethe group with UK arms firm BAE Systems , but tookadvantage of much of the groundwork for the failed $45 billiondeal.

It will lead to a simplified management structure includinga new chairman heading a mainly independent board, and a gradualexit by core industrial shareholders that represented French andGerman interests in EADS since its birth in 2000. The previousshareholder pact had been blamed for making the company toopolitical and tying the hands of its management.

"This new agreement protects the interests of France,Germany and Spain while giving the company the freedom formanoeuvre it needs to pursue its development," French PresidentFrancois Hollande said in a statement.

France and Germany have agreed to control 12 percent each ofthe voting rights, handing Berlin a direct stake in the Airbusparent company for the first time. Spain will also have aslightly reduced stake of around 4 percent.

Until now, parity in EADS - born from a merger of French,German and Spanish interests - had been ensured through ashareholder pact between the French state, French media firmLagardere and German car firm Daimler AG .

The deal to revamp control of the maker of Airbus jetliners, Ariane rockets and Eurofighter combat jets followed a 90-hournegotiating marathon near the Champs-Elysees in Paris betweenEuropean governments, banks and industrial shareholders.

Daimler immediately announced it would sell some of itsshares in EADS to German state-owned development bank KfW as part of an overall reduction of its 15 percent stakein the European aerospace group.

The car firm kicked off a 1.6 billion-euro placing of 61.1million shares or around 7.5 percent of the company. Sourcessaid the shares were being offered from 26.25 euros.

EADS closed up 2.5 percent at 27.23 euros($35.58)on Wednesday, having risen all week on hopes therestructuring would make EADS easier to manage. EADS also set out plans to buy back up to 15 percent of itsshares in two equal tranches - one mainly reserved for Lagardereand the other available to all shareholders.

'Normal Company'

The plans are subject to approval by shareholders in anextraordinary meeting likely to be held in early March. France agreed to give up veto powers over the company'sindustrial policy and none of the governments will have suchrights, but sensitive defence interests will be ring-fenced.

However, a French official said President Hollande hadagreed in a "frank" meeting with EADS Chief Executive Tom Enderson Wednesday that Enders would give a "regular account" oncompany activities to senior ministers every eight months or so.

Enders denied this left the door open to interference. "I had a very good, open meeting with the president," Enderstold Reuters in an email.

"He suggested that we stay in touch and meet from time totime to be updated on important developments and to discuss howthe government can support the company. This should obviouslyhappen also on the level of ministers. So no 'reporting' butvery welcome dialogue with an important stakeholder."

"The state veto powers were hardly ever used but themanagement knew they were there," said Agency Partners analystNick Cunningham, referring to the previous shareholder pact. "This will allow them to run EADS more like a normalcompany, though there are still tight limits to that given thevery high political profile and substantial defence activities."

To allow Germany on board, the amount of EADS directly ownedby taxpayers will actually rise to 28 percent from 20 percent asa result of the deal, though this is well below the currentcombined block of governments and proxies. EADS said the freefloat, or those shares available to the public, would now riseto 70 percent from 49 percent.

Much of the deal was inspired by complex negotiations tomerge EADS and BAE, a potential tie-up that was blocked byGermany in October.

EADS strategy chief Marwan Lahoud, seen as one of the mainarchitects of both deals, said the failure of the BAE talks hadexposed weaknesses in EADS that all sides wanted to fix.

"What the BAE failure has shown is that you have to approachfirst things first," Lahoud told reporters. "If you want to run a strategic transaction, assuming itmakes sense, you need to start by putting the governance right." Enders said the new governance structure amounted to"EADS-BAE but without BAE".

However, EADS reiterated it had no plans to revive the BAEmerger plan as it embarks on a long-term review of its strategy.