Nicolas Sarkozy launched his presidency last night with a friendly dinner in Berlin with German chancellor Angela Merkel. No doubt it was pleasant enough, given the traditional ties between the two countries – at least until the new French president served up the tricky subject of EADS.
Mr Sarkozy wants to resolve as quickly as possible the endless infighting between the French and German camps at the European aerospace group. He appears ready to talk tough to the Germans and is unlikely to accept any more diplomatic dithering.
Sure, the French themselves have helped create the current crisis at EADS and its Airbus affiliate. The scandal surrounding the disgraced former French boss of EADS and Airbus – Noël Forgeard – was largely due to Paris political interference and the weakness of the French industrial shareholder, Lagardère.
The Germans, as in the past, have not been slow to take advantage of the situation to their benefit. But this time they may have gone a step too far. First, Tom Enders, the ambitious German co-chief executive at EADS, is sniping from the sidelines against the French at a time when the company is trying to overcome national divisions. He had no business attacking the French government yet again this week in a German newspaper blaming Paris for the mess at Airbus. What can he hope to achieve by such behaviour?
Second, the Germans have forced the French to accept concessions favouring their workers in the painful Airbus restructuring programme Power8. The French unions are outraged.
Third, DaimlerChrysler, the German industrial partner, could not bring itself to make a minor concession to forgo its paltry €30m dividend this year to appease what was clearly a controversial political issue for the French during a national election.
And now Daimler, which has already made clear it is not a long-term EADS shareholder, seems to be pressing for the sale of the company’s large stake in the French Dassault aviation group. Such a sale would raise about €3bn and help delay a necessary capital increase to fund existing and future Airbus programmes.
For some companies, this might make sense – raising cash from minority stakes, however large. But for EADS, which claims it wants to strengthen its defence market presence, this disposal seems rather short- term. Indeed, the French government, which is the only committed long-term shareholder at this stage, opposes such a move.
The French are looking further ahead both with an eye to future defence sector consolidation and another to the eventual development of a next-generation combat fighter. Under the circumstance, France clearly wants to maintain its expertise through Dassault in this sensitive strategic sector to avoid being forced to buy off the shelf. Surely it is questionable whether a short-term shareholder has the right to dictate long-term strategy, as Daimler appears to be trying to do at EADS.
In any case, the Germans are going to have to be careful with the new French president. If they push him too far, they may find he will not cave in as his predecessors tended to do. Instead he is likely to serve the Germans notice that the time has come to break up the Franco-German EADS partnership.
Life after Chrysler
Now that DaimlerChrysler has sold its most troublesome division, Chrysler, the question is: could the German carmaker become the next target for buy-out groups?
All the signs, on the surface at least, suggest it could become one. Daimler is one of the few big carmakers worldwide without a dominant shareholder to protect it. The German group is still a rag-bag mix of assets, from Mercedes, the most established luxury brand in the car industry, to the world’s largest truck company and a big stake in EADS. Now that the radioactive Chrysler has been sold – to Daimler’s full credit as some wondered whether it would be at all possible – questions will increasingly and inevitably be asked why cars, trucks and planes make sense together.
Daimler also has €12bn of cash on its balance sheet for hedge funds to get excited about. Should it attempt anything other than returning that money to investors, it risks finding activist funds jumping in and making trouble.
Yet, on balance, a private equity takeover seems unlikely. The biggest obstacle is sheer size. Daimler’s market capitalisation has soared 50 per cent to more than €60bn in recent weeks, while its debt in the financial services business is another €50bn. That would make it by far the largest buy-out target ever.
This is not to say Daimler can relax. Chrysler may be gone, but the questions are only just starting about its unwieldy structure and faltering performance. There can be no more excuses now.