Deal that would see Enders, a German, as sole chief of EADS

Posted in Other | 08-Jul-07 | Author: Nicola Clark| Source: International Herald Tribune

Thomas Enders, left, and Louis Gallois on Friday.

PARIS: In an apparent setback for the new French president, Nicolas Sarkozy, who has been seeking to expand French influence at EADS, the main private shareholders at the aeronautics and military group - and parent company of Airbus - have reached a deal that would see a German become the sole chief executive, people with knowledge of the negotiations said Friday.

The deal to streamline the group's dual, French-German management structure would give DaimlerChrysler, the main German shareholder, the right to name the chief executive. The chairman would be nominated jointly by Lagardère and the French government, these people said on condition of anonymity because the discussions are continuing.

The accord is likely to result in the appointment of the current German co-chief executive, Thomas Enders, as sole president and chief executive of EADS, formally European Aeronautic Defense & Space.

As recently as Tuesday, Sarkozy was believed to be pushing Enders' alter-ego, Louis Gallois of France, for the top executive's job at EADS, parent company of Airbus.

Instead, Gallois, 63, would remain at the helm of Airbus to oversee the restructuring of the troubled aircraft maker, according to people with knowledge of the talks.

"A French-German entente has been reached" between the private shareholders about the partitioning of jobs, said one person who had been briefed on the negotiations. "It is a done deal."

All that remains, this person said, is for the French state and the French military and media company Lagardère to unite on a candidate for chairman.

People with knowledge of the discussions said this week that there was a broad consensus among leading EADS shareholders that the company should abandon its binational management in favor of a single chairman and a chief executive.

Alexander Reinhardt, a spokesman for EADS in Munich, declined to discuss the matter, saying questions about management appointments were up to the company's shareholders.

A spokesman at DaimlerChrysler, based in Stuttgart, also refrained from comment. But the German automaker was expected to nominate Enders, 48, for the top job at EADS. DaimlerChrysler is "very happy with Tom Enders doing the job that he does," said one person with direct knowledge of the talks.

Arnaud Lagardère, 46, currently the French co-chairman, appears to be the most likely French candidate to assume the role of chairman of the board, pushing aside his German counterpart, Rüdiger Grube, said one person with knowledge of the discussions between the Lagardère group and the French Finance Ministry, which controls 15 percent of EADS.

Grube, 55, was only recently promoted to EADS chairman, replacing Manfred Bischoff, who resigned in April after being named chairman of DaimlerChrysler.

Phone calls to a Lagardère spokesman went unanswered Friday. But a report in the French newspaper Le Figaro headlined "Arnaud Lagardère wants to be sole chairman of EADS" cited an unidentified person as saying Lagardère wanted to keep his job "now more than ever" to defend his company's financial interests. Lagardère, controls 7.5 percent of the voting stock in EADS through a holding company owned jointly with the French state, which controls 15 percent of EADS.

Discussions within the French camp, however, do not yet appear to have yielded an agreement. According to Le Figaro, the French government has also been considering Philippe Camus - a former EADS chief executive and protégé of Lagardère's late father, Jean-Luc - as a possible chairman.

A spokeswoman for the French Finance Ministry did not return calls seeking comment. Arnaud Lagardère, meanwhile, issued a statement saying "the discussions concerning EADS are taking place without any differences of opinion on the French side." But he added, cryptically: "Questions related to individuals are not on the agenda."

Camus, 59, left EADS in 2005 after a bitter and public dispute with the then chief executive of Airbus, Noël Forgeard, who succeeded, with the backing of Jacques Chirac, then president of France, in supplanting Camus as the French co-chief of EADS.

Camus, who is currently a managing partner of the Lagardère group, was traveling in the United States on Friday and could not be reached.

Analysts welcomed signs that EADS shareholders looked set to abandon the company's two-headed structure, which even company insiders say contributes to a factionalized corporate culture.

"It's about time," said Alexandra Ashbourne an aerospace consultant in London. "Everybody realized that this management structure was unworkable over the long term."

Ashbourne said that Enders had considerable expertise on the military side of the business and had won respect from investors for remaining focused during a turbulent year for EADS.

"Given everything that's happened, from Clearstream to Airbus, he's been able to steer the company through," she said, referring to a political scandal that has ensnared some EADS executives and the disastrous two-year delay to the Airbus A380 superjumbo. "A lesser man might have crumbled or said 'who needs this?' "

Richard Aboulafia, an analyst at the Teal Group, an aerospace consulting firm in Virginia, added that retaining Gallois as the head of Airbus also made sense as the plane maker struggled to right itself. A management crisis has led to the departure of two chief executives over the past 12 months.

"Continuity is very important at this point," Aboulafia said. "The name of the game is giving confidence to the people with money to invest in your company."

Sarkozy is eager to hammer out a deal in time for a July 16 summit meeting with the German chancellor, Angela Merkel, at Airbus headquarters in Toulouse, France. Reforming the management of EADS is considered by analysts as easier to resolve than the thornier problem of modifying its capital structure, which is enshrined in a seven-year-old shareholder pact.

EADS was created in 2000 after months of painstaking negotiations designed to balance the political interests of France and Germany in the group.

The French state and Lagardère originally took a combined 30 percent stake, an investment that was offset by an equal holding from DaimlerChrysler, which represents German interests. But in recent years, the two private shareholders have made clear their desire to reduce their exposure to EADS, since military work and aerospace do not represent core businesses for either company. Both companies have been gradually reducing their stakes since the spring of 2006.

Daimler now holds 15 percent of the equity and 22.5 percent of the voting stock, while Lagardère has cut its stake to 7.5 percent from 15 percent.

Earlier this year, EADS management sought authorization from shareholders to raise as much as $4 billion in fresh capital - a transaction that would have created an opportunity for new shareholders to take significant stakes in the company, but at the expense of maintaining the French-German balance. Faced with a political impasse, the board withdrew the request in May. EADS executives have said they do not expect to revive the issue of new financing until next year. They money would be used to help finance the A350-XWB, a next-generation Airbus widebody jet due to enter service in 2013.

It remains to be seen whether the simplified EADS management structure will lead to less politicized decision making, analysts said.

"Streamlining management is only half the battle," said Aboulafia. "Putting an end to the political interference of governments is the larger issue."

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