EADS faces independence test in sweeping board changes
PARIS (Reuters) - In theory, a new ownership structure means European planemaker EADS is no longer controlled by Paris and Berlin, free to pick the very best person in the world for the vacant job of board chairman. In practice, whoever it is, expect somebody French.
The new structure, hammered out late last year in stormy negotiations after the collapse of a proposed merger with Britain's BAE Systems, goes a huge way towards fulfilling Chief Executive Tom Enders's ambition to turn the maker of Airbus jets into a normal company, free from political meddling.
But filling board seats will still require agile diplomacy, and the outcome should go some way towards revealing just how normal Europe's biggest aerospace company can become.
"This will be the first test of who gets what they want in the new EADS," said Agency Partners analyst Nick Cunningham.
Under the new deal, Germany and France will still have some say over a minority of directors given special responsibility for overseeing ring-fenced sensitive defense interests.
The rest of the board is meant to be fully independent. As long as the company is run by German-born Enders, the chairman is likely to be French. But investors will want to see the company name a strong chairman with the backbone to stand up to politicians and to fight for the firm's commercial interest.
For some weeks, as first reported by Reuters, speculation about a future chairman has surrounded former European Central Bank President Jean-Claude Trichet, who is already on the board. He certainly has stature as a senior statesman, a Frenchman with long experience balancing the interests of Paris and Berlin.
But Trichet is not an industrialist and lacks expertise that could be needed to steer a company through big defense cuts and completion of a new airliner to compete with Boeing's 787. Sources say the company is more likely to pick a candidate with more business experience.
Perhaps the most interesting candidate might be Alcatel-Lucent (ALUA.PA) Chairman Philippe Camus, who helped found EADS and served as co-chief executive for five years until being forced to resign by French President Jacques Chirac in 2005.
A return to center-stage would give the financial wizard and amateur jazz drummer an opportunity to bury past power battles. EADS and Alcatel declined comment, and it remains unclear if Camus wants the job.
Other possible candidates could include Jean-Louis Beffa, honorary chairman of glassmaker Saint-Gobain (SGOB.PA), and the ex-head of nuclear reactor maker Areva, Anne Lauvergeon. Beffa told Reuters he had not been approached: "I can't confirm or deny anything". A source close to Lauvergeon said she was "not campaigning" for the job.
Until now, EADS EAD.PA was governed by a complex shareholder agreement that gave France and Germany veto power over strategic decisions, using large stakes owned by the French government, French media firm Lagardere and German carmaker Daimler.
Jobs were handed out under national quotas; future strategy and even the locations of factories and offices were political issues to be thrashed out by Paris and Berlin.
Under the new structure, Lagardere and Daimler are shedding most of their holdings. France and Germany will own just 12 percent each, theoretically allowing Enders to run the firm without worrying about political meddling. Quotas for jobs are meant to be a thing of the past.
The deal was reached during marathon talks in the febrile days late last year after the BAE (BAES.L) merger collapsed. According to sources present, the method of choosing board members was one of the most hotly debated issues, a central piece of the jigsaw puzzle that allowed the deal to take shape.
The need to find a new structure for EADS became urgent last October, as soon as Berlin vetoed Enders's proposed $45 billion merger with Britain's BAE Systems. Enders had hoped the biggest defense industry merger ever would dilute the French and German vetoes over his company, but that was now a dead letter.
EADS is registered in the Netherlands, and under Dutch law any alliance that controls more than 30 percent of a company must make a bid for it. That meant that if France and Germany wanted to keep control they might be forced to nationalize the company, an expensive proposition both wanted to avoid.
The old shareholder deal was designed to get around the Dutch rule by placing big stakes in the hands of private firms Lagardere and Daimler. But those companies wanted out, which meant the entire arrangement was in danger of collapsing.
Officials say French President Francois Hollande and Chancellor Angela Merkel quickly agreed the political outlines of a new arrangement: France and Germany would effectively control 12 percent each and Spain 4 percent, leaving a safety margin below the 30 percent ceiling.
On technical points, however, France and Germany started "on a different planet," according to one person close to the talks. Chief among these differences was composition of the board, on which Berlin initially demanded the right to place appointees.
PIZZA, SUSHI AND LAWYERS SPEAKING DUTCH
The long, final act began late on Friday November 30. For five days, government officials and private negotiators slipped through the back door of French state law offices behind the Champs Elysees, followed by deliveries of pizza or sushi.
Reflecting the wide interests at stake in one of Europe's most strategic companies, 40 or 50 people negotiated in a large room. Each delegation was assigned a side room to talk tactics.
EADS strategy chief Marwan Lahoud, who had masterminded the failed BAE bid and did much of the creative homework for the new EADS governance deal, asserted the group's independence by pinning up a "Toulouse" sign outside the EADS retreat. The company's decision to base itself in France's aerospace capital was still a sore point with Germany.
To deal with the legal requirements of the Netherlands, each party needed a lawyer with access to a secret weapon: Dutch.
"Each time a new point was introduced the Dutch started shouting," recalls one of the attendees. "People would get up and slam shut their folders and say ‘that's it, I'm leaving'."
"Apparently there are some points of Dutch law which are not clear," quipped another delegate.
One legal point remained clear enough to keep everyone round the table: if the EADS pact disappeared without a new plan in place, European partners would have to launch a 22 billion euro bid for EADS and justify it to voters at a time of austerity.
Adding pressure for a deal was a looming EADS investor forum on Monday December 3. By that evening, with the deadline in tatters, the situation was so tense that exhausted delegates were sent home to rest. Others slept in the law firm's library.
The deal finally took shape on Wednesday December 5 after the arrival of Merkel's economic adviser Lars-Hendrik Roeller.
In a breakthrough that could serve as a model for future European defense consolidation, Paris and Berlin agreed to ring-fence key assets inside special national defense companies supervised by three board members, two of whom would also serve on the main EADS board.
Experts say it will be up to Enders to nominate the three board members of the national defense entities. The French and German governments can approve or disapprove the triumvirate as a whole, but not haggle over individuals.
Even so, delicate questions remain over whether any of these national champions can also chair the whole EADS board. In theory, experts say nothing excludes this, but it will probably be avoided to prevent new problems of political mistrust.
"It will be a more normal process, but realistically have to reflect government wishes to some degree," said Cunningham of Agency Partners. "It is a qualitative change, but all defense companies are to some extent beholden to their governments."
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