BAE Recommends Selling Airbus Stake to Avoid Risks (Correct) By Matthew Fletcher(Corrects name of auditor in seventh paragraph.) Sept. 6 (Bloomberg) -- BAE Systems Plc, the U.K. partner in Airbus SAS, recommended shareholders approve the sale of the company's 20 percent stake in the planemaker for 2.75 billion euros ($3.5 billion) to avoid future risks and expenses. BAE, based in London, will sell the stake to European Aeronautic, Defense & Space. Co., which holds the remainder of the shares, and use part of the proceeds for a share buyback, the company said in a Regulatory News Service statement today. BAE's shareholders will vote on the transaction at a special meeting. ``The board is concerned about the possible cash requirements of the Airbus business in the medium-terms,'' BAE said in the statement. ``The board therefore believes that is in the best interests of the company to exit at the price determined by the independent expert.'' Shares of EADS fell 26 percent on June 14 after Toulouse, France-based Airbus said that it will delay deliveries of the 555- seat A380 a second time. The planemaker is also revamping the design of the midsized A350, spending $10 billion on an all-new airplane. BAE on July 5 questioned an independent evaluation that priced its 20 percent holding in Airbus at 2.75 billion euros, 21 percent less than the book value. The company is seeking to sell the stake to finance defense-industry acquisitions. Rothschild Group, acting as arbitrator after BAE and EADS failed to agree on a price, announced the stake's valuation on July 2. EADS will have to pay the sum as long as BAE shareholders accept the amount. Value Audit The audit, led by accounting firm PricewaterhouseCoopers LLP, was designed to assist BAE's board in assessing whether to recommend shareholder approval of the sale, the company said July 5. The study is allowed under the terms of an accord between BAE and EADS. EADS said on June 13 that the A380 delays will reduce earnings 2 billion euros by 2010. EADS on July 3 named Louis Gallois, a veteran of the French aerospace industry, to restore the company's credibility with customers and investors after embattled Co-Chief Executive Officer Noel Forgeard resigned under pressure from shareholders over the A380 delays. The value of BAE's stake in Airbus is listed at 3.5 billion euros on EADS's books. BAE said on April 7 it planned to sell the stake in Airbus to Paris- and Munich-based EADS and triggered a put option June 7 requiring EADS to purchase the holding. BAE has been shedding assets in Europe to expand in the U.S., where it's the Pentagon's seventh-biggest contractor. The company last year paid $4.1 billion to buy Arlington, Virginia-based United Defense Industries Inc., the maker of the Bradley armored vehicles being used in Iraq.
In July, an independent assessment by investment bank Rothschild put the value of the holding at 2.75 billion euros (3.5 billion dollars), far less than the company's own estimate.Turner appointed accountants PricewaterhouseCoopers to investigate the reasons for the low valuation.The Observer said that BAE is thought to have decided on a "quick sale" of its stake in EADS, which has an 80-percent share in Airbus, because of concerns over the development and soaring cost of the delayed A380 superjumbo.Referring to the PricewaterhouseCoopers inquiry, a company spokesman said: "Until we have an opportunity to consider the content of a serious audit into the Airbus business we cannot make a decision."We said in July the audit would take six or seven weeks, but it is premature and pure speculation to say what the content of that will be -- or a potential value."Any proposal to sell would be taken by shareholders but the outcome of the audit may not even lead to a sale of the Airbus stake, he added.
