BAE & EADS CEOs Reassure Investors Over The Benefits of Merger

BAE & EADS CEOs Reassure Investors Over The Benefits of Merger
By BAE Systems plc [Public domain], via Wikimedia Commons

Tom Enders, the chief executive of Airbus maker EADS NV (EPA:EAD), and BAE Systems plc (LON:BA)’s head Ian King said in a joint newspaper statement that the merger of two European aircraft giants is because of opportunity, not necessity. They reaffirmed that with proper governance, political support and management determination, the combined company will have more strength than the sum of its parts.

BAE & EADS CEOs Reassure Investors Over The Benefits of Merger

EADS NV (EPA:EAD) stocks have plunged almost 18 percent since the merger announcement. BAE Systems plc (LON:BA) gained initially, but now it’s declining. There has been a lot of buzz that the companies are being combined because of the heavy cuts in defense spending. Trashing those rumors, the CEOs said these were just myths and misconceptions. “The rationale that drives this transaction is growth, not contraction,” they wrote.

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BAE Systems plc (LON:BA) is the largest defense manufacturer in Europe. EADS NV (EPA:EAD) is the world’s largest maker of commercial aircraft, closely followed by America’s Boeing Co. BAE Systems earlier had 20 percent stake in Airbus, but the British company pulled out in 2006 to focus completely on defense markets.

There are still disagreements between Germany and France over their respective roles in the new company. France currently has 15 percent stake in EADS plus certain special rights that give France an upper hand in the company’s decision making. Germany is trying to obtain equality with France. German government doesn’t have any shareholding in the Airbus maker, but Daimler AG and a group of German banks have significant shareholding. Germany now sees the merger as an opportunity to tighten its grip.

However, the special rights are likely to disappear after merger because EADS chief executive is trying to eliminate the special rights of the countries after merger. France and Germany both will behave like any other investors.

According to Der Spiegel, a German magazine, the two countries have agreed to hold 9 percent stake each in the newly formed company. Since the formation of EADS in 2000, France and Germany both have tried multiple times to defend their interests, and that has caused tensions in the past.

King and Enders reiterated that all the shareholders of the new company will have equal say. “That would mean creating a business with governance structures which would enable it to operate in a normal commercial manner and which confers the same rights on all shareholders, large and small.”

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