LONDON Oct 23 BAE Systems' biggest
shareholder Invesco will need to drum up more support from other
investors to force out senior board members at the UK defence
firm after its failed $45 billion merger with aeroplane maker
Invesco Perpetual, Henderson Global Investors and Artemis -
which together hold more than 15 percent of BAE - have sent a
joint letter, seen by Reuters, to BAE's board demanding
replacement of Chairman Dick Olver and Senior Independent
Director Peter Mason.
They argued that both departures were necessary to restore
credibility to the company. They want a new chairman to launch
an urgent strategic review in the wake of the EADS deal, which
would have created the world's largest aerospace and arms group.
The merger was derailed earlier this month by political
But other top shareholders contacted by Reuters on Tuesday
said they were not calling for radical board level change yet.
"We've had a call with the chairman. The assurances we were
looking for was that the guys were fully empowered and driven to
get out on the road and start building up the business again ...
and we were given that assurance," said one of BAE's 10 largest
investors, on condition of anonymity.
"The Board of BAE Systems remains fully supportive of its
Directors," BAE said in a statement. The company said it
maintained a dialogue with all stakeholders on strategy,
governance and performance.
The Invesco letter said the investors were prompted to act
by the collapse of the merger that was "symptomatic of a wider
and sustained failure by the board of directors to focus on
strategies that create value for shareholders."
It also criticised management for 10 billion pounds of
acquisitions and capital expenditure since 2004 when the total
market value for the company currently stands at little over
10.6 billion pounds.
"We believe there should be accountability at Board level
for such a poor record of capital allocation over such a long
period," the letter said, highlighting a "lost decade" for
investors with the share price languishing at 2002 levels.
But frustration over an underperforming share price is
tempered for some investors by a healthy dividend yield of more
than 6 percent.
"I can understand the frustrations. They (rebel
investors)clearly they feel the business hasn't re-rated under
the tenure of the current guys. My feeling here is we're being
paid to wait," the first investor said.
Some big shareholders said they were waiting to see how
management steered the company strategically before lobbying for
board level shakeup.
"I would still be in the 'wait and see what happens next'
camp, rather than jumping up and down for change," said one fund
manager at an investment firm that is one of BAE's 10 biggest
A third source at one of BAE's 20 largest institutional
shareholders said they had some questions about the company's
strategy and outlook but they would convey those and any
additional concerns directly to Olver and his colleagues, before
making any decision on withdrawing support.
While not yet actively supporting the push for management
change, a fourth investor at one of the 40 largest BAE
shareholders said at least one of BAE's top brass was likely to
lose their job after such a high profile strategic mishap as the
failed tie-up with EADS.
"To have led the company down such a strategic blind-alley
and then not have some senior board level fall-out would amaze
me," the fund manager said.
The copy of the letter seen by Reuters did not identify
signatories but a source close to Invesco said its senior fund
manager Neil Woodford was joined by two investors in pushing for
change, together making up nearly a fifth of BAE's ownership.
A source familiar with the letter said Henderson and Artemis
were also signatories. Invesco owns 13 percent of the company,
Artemis has 1.5 percent and Henderson holds close to 0.5
percent, according to Thomson Reuters data.
A spokeswoman from Henderson confirmed Henderson was a
signatory. Artemis declined to comment. Invesco did not respond
to a request for comment.
Invesco was opposed to the proposed BAE/EADS merger from the
start and published a long list of objections, including
concerns over state interference, poor terms and a lack of
Supporters of BAE's proposed merger with EADS argued it was
an essential diversification into civil aviation and away from
its focus on defence at a time when cash strapped governments
are cutting arms budgets.
Some investors were frustrated at a lack of information on
the deal during negotiations between the company and
governments, prompting speculation at the time that Olver would
come under pressure to step down.