September 28, 2012 / 1:08 PM / 5 years ago

Germany to make proposals to France on EADS-BAE merger

BERLIN (Reuters) - Germany is set to present France with proposals concerning the planned merger of Airbus parent EADS EAD.PA and British defense contractor BAE Systems (BAES.L), a German government source said on Friday.

Agreed by Chancellor Angela Merkel’s office and the economy ministry, the proposals are aimed at preserving a balance of power between the two countries in the merged company, the source said.

France directly owns 15 percent of EADS and wants to retain its right to influence group strategy, currently conducted in EADS through a complex pact that includes a 7.5-percent stake held by French conglomerate Lagardere (LAGA.PA).

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

The German source gave no further details but his comments confirmed a report in Die Welt on Friday which said Germany was ready to buy up the shares of from Daimler and banks via state development bank KfW if France kept its own stake intact.

The merger to create the world’s largest defense and aerospace company would dilute the influence of the French, German and Spanish governments in the company, prompting negotiations over their future roles.

The Financial Times Deutschland (FTD) said on Friday that Germany and France may try to secure a 27 percent combined shareholding in the new company, but said Britain was opposed.

The stake would create a shareholder counterweight with the power to block decisions by management of the new company, the newspaper said, citing sources familiar with the matter.

STATE INVOLVEMENT

That move could 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 opposed to state involvement.

“Both companies’ view is that the (EADS) voting blocks need to be dissolved so the new group can operate with a normal commercial governance structure,” said a source close to BAE.

Enders called good governance “the ‘go’ or ‘no go’ for this project” in a letter to employees last week.

Top Airbus customer Tim Clark, president of airline Emirates EMIRA.UL, also sees possible benefits from the merger as a means of helping EADS simplify its structure.

“It might, in a slightly obtuse way, bring some order,” he told reporters this week.

The FTD said the 27-percent stake 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.

And it remained to be seen if Germany would approve such a proposal, the newspaper said, quoting industry sources.

The two countries should also get a seat each on the board of directors of the merged company, the FTD said.

German concerns over the merger include how to safeguard jobs and protect the new company from any future hostile takeover, according to a government document obtained by Reuters on Monday.

France and Germany agreed at a summit last Saturday to “consult” on the merger talks, but French President Francois Hollande avoided pledging to create a common position.

The idea of a core 27 percent shareholding in the EADS-BAE combine suggests France would have to pay out for Lagardere’s 7.5 percent stake and the German government would have to buy all of Daimler’s voting interest of 22.5 percent in EADS at a critical time for state budgets.

The approach offered by EADS and BAE is to offer instead of the current stakeholder deal at EADS a “special share” in the combined group for each of the governments of France, Germany and Britain, granting them the right to block any future hostile takeover of the merged firm.

Reporting by Gernot Heller, Gareth Jones, Edward Taylor. Rhys Jones and Tim Hepher; Writing by Gareth Jones and Jason Neely; Editing by Andre Grenon and Greg Mahlich

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