EADS NV (EPA:EAD) said Monday that London-based activist hedge fund The Children’s Investment Fund (TCI) has sent the aircraft maker a letter, urging it to offload its stake in Dassault Aviation SA (EPA:AM) (OTCMKTS:DUAVF). EADS’ 46 percent stake in Dassault Aviation is currently valued at $5.3 billion. TCI partner Ben Walker said the stake is a “poor use of capital” because it offers “no synergies” and has “little strategic value” to the group.
The activist hedge fund wants the proceeds from the sale to be distributed among shareholders through a special dividend or a share repurchase program. Ben Walker warned EADS NV (EPA:EAD) CEO Tom Enders in the letter sent on Friday that the stake shouldn’t be sold at low prices to the French government which has the rights to purchase shares if EADS divests, or to Marcel Dassault, the parent company of Dassault Aviation SA (EPA:AM) (OTCMKTS:DUAVF) which owns 50.55 percent stake in the Rafale fighter jet maker.
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EADS under pressure
TCI’s move comes amid rising market pressure on EADS NV (EPA:EAD) after the company’s corporate governance restructuring in April. French government still has 12 percent stake in the Airbus maker. French government has an agreement with EADS, under which the latter will “warehouse” the Dassault Aviation SA (EPA:AM) (OTCMKTS:DUAVF) stake, according to Reuters. However, French government seems to be in no mood to terminate the agreement.
EADS NV (EPA:EAD) is transforming itself into a civilian aerospace conglomerate after its failed merger with British defense contractor BAE Systems Plc (LON:BA) (OTCMKTS:BAESY). The French company has announced to change its name to Airbus and combine its space and defense businesses.
TCI owns a little over 1 percent stake in EADS NV (EPA:EAD). TCI told Reuters that it hasn’t discussed the matter with other shareholders, but they would likely agree with Ben Walker’s letter. Over the past few years, the activist hedge fund has shaken up the management of several companies including Japan Tobacco Inc. (TYO:2914), Coal India Ltd. (NSE:COALINDIA) (BOM:533278), Deutsche Bank AG (NYSE:DB) (ETR:DBK), J-Power, and French aerospace firm Safran SA (EPA:SAF).
EADS will not have the final say
Though EADS NV (EPA:EAD) claims to be a normal company, making its own decisions, it will not have the final say in the matter. Citing people familiar with the matter, the Financial Times said that EADS management could be sympathetic to the activist investor. But the agreement with the French government will restrict the company management.
Now the government doesn’t have a final say over the company’s strategy, but it still has a veto over what EADS NV (EPA:EAD) can do with its 46 percent stake in Dassault Aviation SA (EPA:AM) (OTCMKTS:DUAVF).
EADS NV (EPA:EAD) shares were trading down 0.20 percent to 44.96 euros at 3:53 PM CEST.