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Tuesday December 4, 2012

EADS revamp brings government out of industry’s shadow

PARIS: An imminent shakeup of EADS is expected to lead to a rise in state shareholdings in Europe's largest aerospace group, but in reality merely changes the rules for what is already a wary cohabitation.

Officials were putting finishing touches on Sunday to a deal to bring Germany on board with 12% of the maker of Airbus jets and Ariane rockets, at parity with France.

The move paves the way for an exit by founder companies Daimler, the German carmaker, and French media firm Lagardere, increasingly viewed as state proxies.

Germany has not been a shareholder until now while France previously allowed itself to be represented by Lagardere. Spain will continue to hold up to 5.5%, leaving combined government shareholdings close to 30% and a larger float.

It is not the pure-market solution EADS chief executive Tom Enders, a critic of state interference, might have wanted.

But experts say it will clear the air by getting rid of a complex shareholder pact between France, Lagardere and Daimler in which it was not always easy to see who pulled the strings.

For critics of state involvement, an example of the risks now facing EADS unfolded even as the details were being worked out. The French government struck a deal for investment in a steel plant after publicly threatening its nationalisation.

Few are in a better position to reflect on the love-hate relationship between state and industry than the plant's owner, Indian-born steel tycoon Lakshmi Mittal, head of ArcelorMittal.

Branded unwelcome in France by one minister for threatening steel jobs, he is also one of a core group of independent board members shaping EADS, which builds French nuclear missiles.

Officials say the strongest efforts will be made to avoid governments exerting pressure on EADS through the shareholdings.

Firstly, none of the government shareholders will have the broad strategic powers over industrial decisions which the French enjoyed but rarely used under the existing pact.

Measures such as a French veto on acquisitions over 500 million euros, which is small change in aerospace, will vanish.

Secondly, there are proposals to exclude actively serving civil servants from a radically-altered board to be built around a new chairman and adopted by an extraordinary general meeting.

Finally, the combined blocks will represent far less than the current level of more 50% for governments or proxies.

There are likely however to be guarantees on national security.

Analysts say the move could remove ambiguity, encouraging governments to deal openly rather than lurking behind proxies.

“It is about the best corporate governance you can expect in European defence,” said Agency Partners analyst Nick Cunningham.

Still, some will see the move as a victory for political power over shareholder power.

Just weeks ago, France had snubbed Germany by refusing to hammer out a joint position on proposals to merge EADS with UK arms firm BAE Systems. Reuters

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