Maintains Franco-German Balance of Power

DaimlerChrysler said Friday it sold a third of its stake in European Aeronautic Defense and Space Co. (EADS), the parent company of planemaker Airbus, to a private investment group in a deal that will maintain the balance between German and French shareholders in a $1.95 billion deal.

The world's fifth-biggest automaker, DaimlerChrysler said the deal, which has been in the works for months, would reduce its EADS stake to 15 percent but leave it with the voting rights on the full 22.5 percent. The company says it wants to focus on its core businesses, reported Reuters.

"This allows us to focus more on our automotive business," DaimlerChrysler spokesman Thomas Fröhlich told Reuters. "It's a strategic rationale not a financial one."

The consortium buying DaimlerChrysler's shares groups seven private-sector investors, including the German insurance group Allianz, and the banks Commerzbank, Deutsche Bank and Credit Suisse and Goldman Sachs.

Eight public-sector investors are also involved, including KfW, the state-owned development bank, and the states of Hamburg, Bremen and Lower Saxony. The states buying into EADS are home to significant Airbus production facilities; local politicians have been lobbying to protect jobs.

DaimlerChrysler talks included German and French officials, along with EADS' Spanish shareholders, and were focused on how to reduce its stake without upsetting the balance of national representation in the company, which also produces military hardware for European countries, reported the International Herald Tribune.

The deal is designed to safeguard German influence in EADS at a time of major restructuring that could cost thousands of jobs at its Airbus subsidiary.

"The key motive (for DaimlerChrylser) is a political one," said Konrad Becker, an analyst at Merck Finck & Co. in Munich, who covers financial companies including Allianz, Deutsche Bank and Commerzbank. "Of course, they're also hoping they'll make a profit on the investment."

Merkel said on October 12 the German government needed to "lend political support" to EADS's reorganization plans. By ensuring that German states and banks bought the DaimlerChrysler share, the government helped make certain German influence at the company and balance the influence of French investors, who have a combined stake of 22.5 percent.

"The solution makes sense for the government from an industrial and political point of view," said Merkel's chief spokesman, Ulrich Wilhelm. "We succeeded in securing the Franco-German balance in the voting system."

A German government spokesman said Daimler's deal should strengthen Germany's hand in talks over the restructuring amid union fears of up to 10,000 job cuts. EADS is expected to unveil details of its Power8 restructuring plan on February 20.

French Prime Minister Dominique de Villepin met the co-chief executive of EADS and head of Airbus, Louis Gallois, Friday. He reiterated to Gallois the importance of evenly splitting any Airbus job cuts between countries, Villepin's office said. Germany's economy minister, Michael Glos, will see Gallois next week.

The DaimlerChrysler sale comes as Airbus is set to report its first every loss because it is running two years late in deliveries of the 555-seat A380, Bloomberg reported. EADS has said it will have operating losses of (US)$6.24 billion between 2006 and 2010 because of mounting costs on the A380 and penalty payments to A380 customers.

Airbus's German workers have already threatened to slow production and deliveries if jobs are cut. On February 5, production workers walked off the job at four of Airbus's seven German factories to demonstrate their opposition to what they estimated were as many as 8,000 of Airbus's 19,000 jobs being in the crosshairs in Germany.

Airbus hasn't specified yet whether or how many jobs will be cut. After the cost overruns and delays on the A380, the company is seeking to slash (US) $2.7 billion from annual costs by 2010.

FMI: www.airbus.com, www.daimlerchrysler.com