What’s EADS worth in a euro crisis?

Reports from the Financial Timesin Germanysuggest Berlinis finally prepared to take action on the longstanding question of ownership ofEADS, by buying out at least most of the 22.46% of the company owned orcontrolled by Daimler. The story has been denied by the German government, but still reveals much about the ongoing discomfort over the agreement between France and Germany to hold exactly-balancing national stakes in the aerospace group.

Daimler, whose aerospace divisionformed the core of the German pillar of EADS when the Airbus and Eurocopterparent was formed a decade ago out of French, German, Spanish and UK nationalaerospace companies, has remained Berlin’s proxy holder of the German share ofthe company. But the car maker wants out.And, at least according to FT sources inside the German government, Berlin has reached the conclusionthat neither financial nor industry buyers are to be found.

Political opposition to agovernment buyout is apparently weakening, so a €2.5 billion deal to buy 15% ofEADS over the next year or so may be on the cards.

Such nationalisation would still leave a short 7.5% with Daimler,whose finance chief Bodo Uebber – who doubles as EADS chairman – has saidintends to retain “industrial leadership” of Germany’s interest in the aerospacegiant.

What might be shifting political opposition tonationalising the stake is the price. EADS is now trading right in the middleof its 52-week price range, which bottomed out at €16.62 last November andpeaked at more than €25 in June, before stock markets tanked this summer.

Thus, Berlincan buy in at what might well be sold to uncertain members of the coalitiongovernment as a reasonable price, which values the company at €16.7 billion – ashade below its market capitalisation at the moment, but neither at the top norbottom of the market.

Government action now might also help steady market nerves,as EADS’s main business, Airbus, is entering an uncertain period. The comingcouple years are its opportunity to prove that it can bring to market a majornew product – the A350XWB twin-aisle jetliner – without stumbling through thesort of costly delays and engineering hiccups that have marred arch-rivalBoeing’s reputation while it struggled with the 787.

Also, it’s worth remembering that Daimler’s anxiety aboutholding the EADS stake resulted in a deal that saw a consortium of German banksbuy a third of the stake – 7.46% of the company – and hold it temporarily on theunderstanding that Daimler would ultimately buy it back. If instead thegovernment steps in soon and buys those shares, it avoids a battle with Daimlerin the next year or so over the matter.

And, such a move would bolster those German banks’ balancesheets by €1.25 billion. In the grand scheme of responding to the eurozonecrisis that is not a pivotal sum. But Berlinwould presumably welcome the opportunity to pump it into its fragile banking sectorwithout having to fight the political battle that is bank recapitalisation – a battleso much bigger than any disagreement over whether the state should own part ofEADS.


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