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Miles & Merkel

November 10, 2011

After failing to find a private investor, the German government has agreed to acquire Daimler's shares in aerospace group EADS to maintain a Franco-German balance at Airbus' parent company. Analysts applaud the move.

Airbus model in front of an EADS logo
Berlin will take a stake in EADS until a private investor is foundImage: AP

Germany's state-owned development bank, Kreditanstalt für Wiederaufbau (KfW), will buy a 7.5 percent stake in the European Aeronautic Defence and Space Company from Stuttgart-based carmaker Daimler next year

The stake, valued at 1.2 billion euros ($1.6 billion), will be held by the bank until a long-term solution is found, according to the Economy Ministry.

Since early this year, Daimler has been spreading the word that it wants to sell a least half of its remaining 15-percent stake in EADS when a consortium agreement expires in June 2012. The company wants focus more on its core luxury car and truck manufacturing operations, as competition, particularly from Asia, heats up in both sectors.

Complicated structure

Airbus A380
Airbus has big plans for the large passenger aircraft marketImage: Lufthansa

In June, Daimler CEO Dieter Zetsche said the discussion about Daimler's stake in EADS can't go on "forever."

"This is a good move by Daimler," Albrecht Denninghoff, an analyst with Silvia Quandt Research in Frankfurt, told Deutsche Welle "The company has a complicated structure compared with its German rivals, which are focused on just cars. It would be even better if Daimler could pull out (of EADS) completely but no other private investor has come forward yet."

Those plans, however, left the German government scrambling to find a way to counterbalance French influence at the aerospace company. Under the agreement that created EADS, the parent of aircraft builder Airbus, investors from France and Germany must hold balanced voting rights in the company.

Both countries are keen to avoid having to return to the negotiating table to debate the politically sensitive pact ahead of elections next year in France and the following year in Germany.

In addition to its 15-percent stake, Daimler controls the voting rights of an additional 7.5-percent stake it sold to a consortium of German banks and insurance companies in 2007.

Similarly, French publisher Lagardere owns 7.5 percent of EADS and manages the French government's 15 percent stake.

Chancellor Angela Merkel and Economy Minister Philipp Rösler
Chancellor Angela Merkel had to win over Economy Minister Philipp Rösler from the Free DemocratsImage: dapd

End of an ambitious strategy

To finance the acquisition, the German government has hinted it plans to accelerate the sale of its remaining stakes in Deutsche Telekom and Deutsche Post.

The government agreement to buy a stake of EADS, however, required some intensive lobbying on the part of Chancellor Angele Merkel, whose coalition partner, the Free Democrats, traditionally oppose state ownership of companies.

For Daimler, the slow retreat from EADS signals the end of an ambitious strategy to grow beyond cars and trucks.

"Exiting EADS makes sense for Daimler," Cord Schellenberg, an independent Hamburg-based aerospace consultant, told Deutsche Welle. "But it's amusing to see how industry strategies move in waves. At some point, companies want to broaden their scope of activities, only to revert to their core business 10 or 15 years down the road. And the government is there to help balance those waves."

Author: John Blau
Editor: Sam Edmonds