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Airbus sale of Dassault stake shows Rafale, Falcon maker's appeal

Airbus’s 25 March move to offload a second tranche of its shareholding in Dassault Aviation has advanced its strategic plan to pare away non-core assets – and underscored the attractiveness to investors of Dassault, a company whose shares have until now been essentially untraded.

The sale of 1.61 million shares amounted to about 17.5% of Dassault's share capital; 5% of the offer (461,000 shares) was bought by Dassault for the €980 per share placement price, but the remainder were taken by institutional investors for a small premium, at €1,030.

The transaction leaves Airbus with just shy of a quarter of the company – down from 42% after a smaller sale in November and more than 46% historically. Groupe Dassault, parent company of the maker of Rafale fighters and Falcon business jets, which also owns software house Dassault Systemes among other businesses, commands 55.55% and Dassault Aviation itself 5.44%.

Significantly, the percentage of shares free floating now stands at 14.4% – up from just 1.9% before the placement, and an increase welcomed by Dassault itself. A further 120,000 shares may be sold if options are exercised by 24 April.

Ultimately, Airbus may conclude its divestment from Dassault this year, through it has agreed a 180-day lock-up for its remaining shares.

Airbus Group chief strategy and marketing officer Marwan Lahoud said the sale advanced its portfolio review, while “the strong demand from investors clearly shows the underlying quality of the Dassault Aviation business”.

Lahoud’s remark reflects the assessment of Societe Generale equities analyst Zafar Khan in a July 2014 note to initiate coverage of Dassault Aviation. Noting that while fighter jet export orders were needed to bolster a backlog otherwise linked solely to the French military, Khan observed that business jet market recovery was a boon to Dassault and the company was cash-rich. Overall, he wrote, “Dassault Aviation is an appealing company without any direct peers.”

At that time, SG’s target price was €1,160, so recent events suggest some upside for new investors; the free float has increased dramatically and, while negotiations over an order for 120 Rafale fighters from India have yet to be concluded, Egypt earlier this year became the first firm Rafale export customer, ordering 24 of the aircraft.

In the latest share sale, the French government opted not to exercise its right of first refusal. Should neither Dassault nor the French state participate in further Airbus sell-offs, the free float in Dassault Aviation shares could rise to as high as 39%, though Groupe Dassault would hold 58.75% of voting rights, an even greater share than it held before Airbus began selling off its shares in November 2014.

Airbus’s longstanding 46% holding was inherited from Airbus predecessor Aerospatiale and a legacy of a Francois Mitterrand-era French government attempt to nationalise Dassault. But while Airbus received a proportional share of Dassault's earnings, it had no control over the company, nor any particular interest in influencing it. Moreover, the two are competitors in military aircraft, with Rafale a rival to the Airbus-BAE Systems-Finmeccanica Eurofighter Typhoon.

But the past couple years have seen Airbus win its freedom from political oversight by Paris and Berlin, which created the company from state-controlled aerospace industries and historically ensured that operations were carefully balanced between Germany and France. Now, each state has only a small stake of less than 11% and no say in management. Increasingly, then, Airbus’s newly independent management and growing cohort of private and institutional shareholders had come to see the Dassault shares as pointlessly tying up some €4 billion.

Chief executive Tom Enders, who drove the reduction of state shareholdings and then, in 2014, completed a divisional restructuring that also ditched the old EADS name in favour of Airbus Group, has been keen to operate as a “normal” company. Beyond its Dassault stake, the group is pushing to sell off non-core businesses, a move which Enders has labelled a priority.

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