Investors on both sides of the channel voice concerns about merger
Political issues are not the only obstacles standing in the way of the €35 bn ($45 bn) merger project between British and pan-European defense and aerospace groups BAE Systems and EADS.
Last week, French media group Lagardère, which owns 7.5 percent of EADS alongside the 15 percent stake held by the French state, declared the transaction’s terms unsatisfactory and said the project had ‘not yet demonstrated that it was creating value for EADS.’
The media group was also allegedly unhappy with the proposed 60:40 split structure for EADS and BAE, respectively, in the new combined entity. Car maker Daimler, which controls the 22.5 percent German shareholding in EADS, has voiced similar concerns over the valuation of its stake.
Both Lagardère and Daimler have made it clear they are seeking to exit EADS and are urging the company to re-examine the financial conditions of the deal.
Things are not going any more smoothly for BAE. A few days after Invesco Perpetual, the company’s largest shareholder with 13 percent, issued a statement expressing concerns about the deal’s structure and its impact on shareholder value, it was reported that the wind of disapproval was spreading to other investors.
According to the Financial Times, more than 30 percent of BAE shareholders have strong reservations about the merger, with six of the biggest 20 warning they support Invesco, although none of them have officially threatened to obstruct the deal.
There is a general skepticism among the British company’s investors, which consider the tie-up as both strategically and commercially unrealistic, and subjected to overly heavy political impediments. British defense secretary Philip Hammond warned recently that the UK would not back the merger unless the German and French governments agreed to reduce their stakes in the new company
In accordance with the UK’s corporate voting rules, BAE will need a 75 percent majority for the deal to go through, which is far from guaranteed. ‘Our view is that this deal may be close to collapsing,’ one of BAE’s top 10 shareholders told the FT.
Invesco stressed that the diversification benefits gained from the merger with EADS, which has a growing civil aviation business, could be achieved without a merger. It also pointed out that the tie-up could threaten BAE’s prime position in the US defense market.
The UK’s Takeover Panel has set a regulatory deadline for October 10, although the much-awaited conclusions from the meeting of NATO defense ministers today may lead to a postponement of the final decision.
Candice de Monts-Petit
Candice de Monts-Petit joined IR Magazine as a senior editor in 2012. Prior to this, she worked in investor relations, first as an IRO for oil and gas firms in Paris and Moscow and subsequently as an IR consultant in London. She graduated in business...
