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  • ANALYSIS: Enders strengthens grip on new-look EADS

ANALYSIS: Enders strengthens grip on new-look EADS

European aerospace industry champion EADS is set to embark on the most radical governance shake-up in its 12-year history, which will see Paris and Berlin give up veto rights over management decisions at the Airbus and Eurocopter parent and increase the confidence of ordinary investors by reducing government holdings to below 30%.

The most visible near-term result of the new structure agreed yesterday - set to be enacted by an extraordinary general meeting scheduled for the first half of 2013 - may be the consolidation of corporate headquarters in Toulouse. The move to abandon Munich as a co-headquarters - implicit in the agreement between the French, German and Spanish governments and their proxy shareholders who between them currently own more than half of EADS' shares - will be a symbolic victory for chief executive Tom Enders.

The former Airbus boss has made it clear since stepping into the top corporate job last summer following Louis Gallois's retirement that he wants to streamline a cumbersome management structure which has always seen key functions, personnel and facilities duplicated to maintain Franco-German parity in the company formed in 2000 by bringing together national aerospace champions.

More dramatic changes to daily management are considered unlikely, but the new governance deal will have significant long-term implications. Critically, while today France and Germany are both guaranteed equal 22.35% shareholdings - held directly and through proxies Lagardère (France) and Daimler and KfW (Germany) - and junior partner Madrid holds 5.45%, those stakes will be whittled down to 12%, 12% and 4% respectively, leaving more than 70% of shares to float freely on the stock market.

And, the veto rights over management decisions currently held by Paris and Berlin will be abandoned. Government protection of national security interests will, instead, be assured by the formation of special defence technology companies within EADS divisions. It is over these interests that national government shareholders will maintain special rights.

The new arrangements were hammered out just weeks after the company suffered embarrassment over the failure of a proposed merger with UK-based defence giant BAE Systems. That deal, though considered poor value by many investors in both companies, was intended to transform EADS's struggling defence business and give it a stronger foothold in the US, where BAE has built itself into a solid partner for the Pentagon.

However, the veto of German chancellor Angela Merkel, who believed it would likely cost German jobs and influence by creating a UK-France axis within EADS, killed off any hope of a deal.

That veto would have been impossible under the proposed governance pact, as all parties were European. Under the new rules, Germany could have insisted that special defence units within EADS be given protection, but it could not have ruled out the deal as a whole.

The new pact is also understood to have been prompted by the fact that Daimler and Lagardère, who each hold more than 7% of EADS shares, have made it very clear that they want out. That issue has been simmering for a couple of years, with German bank KfW - which holds another 7%-plus of shares formerly on Daimler's books - also wanting to be bought out. The new deal will see many of those shares purchased by EADS itself using its substantial cash reserves. The rest can be sold by Daimler and Lagardère without interference from Berlin or Paris.

One London City analyst who follows EADS closely regards this move towards a normal corporate governance and shareholding structure as "the biggest change since the company was created". And, Société Générale's Zafar Khan adds, while Enders' reputation took a hit from the failure of the BAE merger proposal, his net position today is considerably strengthened. EADS, he says, has a very well-qualified chief executive in a very secure position to lead the company.

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