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Daimler-Chrysler Cutting Its Eads Stake Further  
User currently offlineNAV20 From Australia, joined Nov 2003, 9909 posts, RR: 35
Posted (7 years 10 months 2 weeks 2 days 1 hour ago) and read 1326 times:

A year ago D/C sold off 7.5% of its original stake in EADS. Now it is selling off another 7.5%, a high proportion of it going to State-owned German banks.

The proposed deal has some decidedly odd features:-

"DaimlerChrysler AG (nyse: DCX - news - people ) said it is cutting its EADS NV holding to 15 pct from 22.5 pct by transferring a 7.5 pct stake to a pool of investors in a 1.5 bln eur deal.

"The transaction will be executed in the first quarter of 2007."


So far so good - but D/C are creating a new structure that puts their EADS involvement at 'arm's length' from their mainstream activities:-

"Under the deal, DaimlerChrysler has placed its entire 22.5 pct equity interest in EADS into a new company. A consortium of investors will then acquire a one-third interest in this new company through another entity which would be specifically created for this transaction.

"This one-third interest in the new company effectively represents a 7.5 pct stake in EADS, the statement said.

"DaimlerChrysler will receive around 1.5 bln eur in return for the indirect ownership, it said."


Beyond that, they appear to be offering the new investors almost a 'double your money' guarantee of an artificially high return - presumably as compensation for the high risk of EADS failing to pay dividends at anything like 'normal' levels for the next few years:-

"As compensation for the indirect nature of the stake, DaimlerChrysler will give the investors a preference dividend on the stake, equivalent to 175 pct of the normal EADS dividend."

Next, D/C has reserved the right to dissolve the new structure and for it - or the German, or the French governments - to buy out the new investors any time after 2010:-

"DaimlerChrysler has the option of dissolving the new structure on July 1, 2010 at the earliest.

"If it does so, DaimlerChrysler has the right to pay the investors either with cash or EADS shares. In the latter case, the German government and Sogeade -- which represents the French government and Lagardere -- will have the right to acquire EADS shares first in order to retain the shareholding balance between the German and the French side."


Finally, it's clear from the release that one at least of the objects of the deal is to increase, not decrease, the leverage of the German government in resisting any proposed economies that affect employment at the German end of Airbus:-

"A German government spokesman said under the deal, Germany's interest is now 'better positioned' in the face of an impending 'difficult' negotiation pertaining to Airbus' cost cutting programme Power8."

http://www.forbes.com/markets/feeds/afx/2007/02/09/afx3412087.html

Pretty clear that D/C wants to reduce its exposure to EADS/Airbus as much as possible - and that the German Government is determined to retain as much 'control' as it can.

Looks to me as if this deal as a whole can only INCREASE political interference in the running of EADS/Airbus, and therefore make recovery even more difficult to achieve. What do other people think?


"Once you have flown, you will walk the earth with your eyes turned skywards.." - Leonardo da Vinci
4 replies: All unread, jump to last
 
User currently offlineGbfra From Germany, joined Sep 2006, 448 posts, RR: 0
Reply 1, posted (7 years 10 months 2 weeks 2 days ago) and read 1295 times:

You forgot to mention a crucial point:

The voting rights are not sold. D/C will hold 15 percent of the capital of EADS but still 22.5 of the voting rights.

This statement was first published more than 24 hours ago. I wondered how long it would take for someone on this forum to discover it.

However, reactions by politicians in today's German press clearly show that they do not think they will gain influence on EADS or Airbus by this move. They bought the shares because D/C and the German government were looking for reliable investors. But, as I wrote, they do not dispose of any voting rights.

Additionally it is interesting to see who is among the private investors: Not only German companies like Deutsche Bank or Allianz but also the big American investment bank Goldman Sachs.



The fundamental things apply as time goes by
User currently offlineNAV20 From Australia, joined Nov 2003, 9909 posts, RR: 35
Reply 2, posted (7 years 10 months 2 weeks 1 day 14 hours ago) and read 1207 times:

Quoting Gbfra (Reply 1):
The voting rights are not sold. D/C will hold 15 percent of the capital of EADS but still 22.5 of the voting rights.

I agree that that's the future setup, Gbfra. A 15% shareholder having the right to appoint 5 out of 11 board members and to have a 50/50 say in the appointment of company officers. The difference between us is, you seem to imply that that is somehow a good thing?

Quoting Gbfra (Reply 1):
They bought the shares because D/C and the German government were looking for reliable investors.

Surely they bought the shares because D/C wanted rid of them to reduce its exposure/risk?

To me, the 'crucial' thing is that D/C has had to offer a 75% premium on dividends to get the investors on board. That is proof that the new investors, in their turn, see investment in EADS as a risky business at the moment.



"Once you have flown, you will walk the earth with your eyes turned skywards.." - Leonardo da Vinci
User currently offlineGbfra From Germany, joined Sep 2006, 448 posts, RR: 0
Reply 3, posted (7 years 10 months 2 weeks 1 day 13 hours ago) and read 1171 times:

Quoting NAV20 (Reply 2):
agree that that's the future setup, Gbfra. A 15% shareholder having the right to appoint 5 out of 11 board members and to have a 50/50 say in the appointment of company officers. The difference between us is, you seem to imply that that is somehow a good thing?

No. Just a couple of hours ago I wrote an article for my newspaper in which I severely critisized the whole organisation of EADS. I would like to see EADS become a "normal" company.

On the other hand you have to accept facts. If the Germans stepped out EADS would become a French company. And although I'm certainly not anti-French - I spent nine years in France and I really like the country and the people there - I don't think this would be a good idea.

From my point of view there is no optimal solution in the near future. All you can have is a second-best solution.

Quoting NAV20 (Reply 2):
To me, the 'crucial' thing is that D/C has had to offer a 75% premium on dividends to get the investors on board. That is proof that the new investors, in their turn, see investment in EADS as a risky business at the moment.

Yes and no. Look at the small amount of money Deutsche Bank or Goldman Sachs are investing. It's really not important for them. They wanted a compensation for the fact that they have no voting rights and that's okay. This is nothing particular for a German. In the past various German companies had sold so-called "Vorzugsaktien" ("preferred stocks" could be an interpretation). These stocks had no voting rights but promised an especially high dividend. This scheme was quite common in Germany.



The fundamental things apply as time goes by
User currently offlineNAV20 From Australia, joined Nov 2003, 9909 posts, RR: 35
Reply 4, posted (7 years 10 months 2 weeks 1 day 12 hours ago) and read 1150 times:

Quoting Gbfra (Reply 3):
I would like to see EADS become a "normal" company.

Entire agreement on that then, Gbfra.

Quoting Gbfra (Reply 3):
Look at the small amount of money Deutsche Bank or Goldman Sachs are investing. It's really not important for them.

For my part, I think the 'penny packets' that they're all taking are a further reflection of the high level of risk they foresee. We're talking about 'only' E1.5B. - we both know that any single one of the institutions involved could have 'swallowed that whole' if they'd had a mind to.



"Once you have flown, you will walk the earth with your eyes turned skywards.." - Leonardo da Vinci
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