BAE Systems, Britain's leading defence contractor, came under severe pressure yesterday to hold on to its 20% stake in Airbus after Rothschild valued it at merely €2.75bn (£1.9bn) - or around half its own estimates.
Shares in BAE fell as much as 5% in early trading after EADS, which owns the other 80% of Airbus, said late on Sunday it would pay the €2.75bn in cash - and, after paying its partner a dividend of €129m, extract repayment of a €1.2bn loan. After transaction fees BAE will be left with €1.65bn - barely enough to help finance a planned expansion via acquisition in the lucrative US defence market.
The British group decided to exercise its "put option" to sell its Airbus stake six days before EADS announced fresh delays to deliveries of the A380 superjumbo, provoking a 26% collapse in its own share price and in the value of Airbus, which provides 80% of its profits.
BAE defied the UK government when it decided to sell its stake, with ministers worried about the impact on some 12,000 Airbus jobs in Britain, including at Broughton, north Wales, where wings for the A380 and other jets are made.
The company said it would consider its recommendation to shareholders, who meet this month, but the low price Rothschild has put on its stake raises serious questions about the plane-maker's own value and its controversial use of vendor financing to boost its turnover. Some analysts believe BAE may simply be forced to bite the bullet and accept the valuation.
EADS valued the stake at €3.5bn in March but it and BAE failed to agree on a fair valuation during two weeks of negotiations, triggering the entry of Rothschild as independent arbitrators. BAE, whose executives have long doubted the A380's success, reiterated that Airbus was no longer a core part of its business though it brought in £254m profits last year and was grossly valued at £5.8bn in its books.
Shares in EADS fell up to 2% after initially climbing 7% following its confirmation on Sunday that Noël Forgeard, its co-chief executive, and Gustav Humbert, Airbus chief, were quitting because of the A380 debacle.
They are replaced by Louis Gallois, head of French state railways SNCF, and Christian Streiff, deputy chief executive of Saint-Gobain, the glass maker.
Investors voiced concern that the changes in the EADS executive structure leave untouched the dual-national (Franco-German) system in place since the group was formed in 2000. DaimlerChrysler, the German-US cars group that owns 22.5%, and Tom Enders, EADS's joint chief executive and a German, had pressed for a single chairman and chief executive.
Mr Forgeard, under pressure for exercising stock options worth a net €2.5m in mid-March, told the French daily Les Echos that he had abandoned his original refusal to resign "in the interests of the firm I love". He added: "The personal dissensions that have risen at the head of the group have made my situation untenable."
Insisting that his share dealings were honourable and legal, he said he was waiting "with serenity" the outcome of an investigation into them by the French financial regulator AMF and said he bore no responsibility for the A380 delays - having fought since April 15 to "bring light to the situation". He hit back at accusations of constant politicking, saying he had no talent as "a diplomat trained in the subtle games of power and intrigues. It's neither my passion nor my talent."