EADS Rules Out New Merger Talks with BAE
Contrary to recent speculation in the financial press, EADS has no intention of reviving the merger talks with BAE Systems that were aborted last October. “It’s not on our radar; we’re both moving on,” said Tom Enders, CEO of EADS. “All the stars were aligned last summer, or so we thought. But at least one proved to be missing,” he continued, in a reference to the German government’s opposition to the merger. He made no reference to the negative reaction of significant private shareholders on both companies to the plan.
Speaking at the EADS annual results press conference on February 27, Enders noted that the company’s share price had risen by €10 since the proposed merger was called off. Moreover, the failure had paved the way “for our important changes in governance,” Enders continued. These are designed to reduce interference in operational decision-making within the French and German governments, despite their major shareholdings in the pan-European aerospace company. They include a new, independent board of directors, scrapping of the shareholder pact, and a goal of a 70 percent free float of EADS shares. Enders said that European governments are still likely to exercise some influence over a company with major defense capabilities such as EADS, just as the Pentagon, Congress and the White House do in the U.S.
He likened the future situation to the “golden share” arrangement between the UK government and BAE Systems. “There will be no backstage pact,” he declared.
In fact, Enders seems to have changed his mind about the need to boost defense business at EADS, the driver for the merger from the EADS side. Defense budgets are under pressure on both sides of the Atlantic, he noted. Defense accounted for only €12 billion of the total €56.5 billion revenue at EADS last year. But this business is profitable, and potentially more so, after job cuts and the ongoing review of activities within Cassidian are completed, Enders said. EADS reported that Cassidian’s order intake rose “significantly” in 2012 despite the challenging market environment. But at Eurocopter, another EADS subsidiary, a €100 million charge was booked against expected cancellations of military helicopter contracts, notably in Germany, where talks to reduce the number of NH-90s and Tigers on order continue.