AS CONSPIRACY theories go, the ones attaching themselves to the collapse of the shares in EADS, the Airbus aircraft manufacturer, are corkers.
EADS, according to the whisperers, purposefully exaggeraged its problems in order to reduce the amount it has to pay BAE Systems for the 20 per cent stake of Airbus that it is obliged to buy off the London quoted defence engineer.
London market investors, to judge by the way shares in BAE took a bath yesterday morning, seemed to think BAE’s windfall might be badly affected by the poor overnight news from EADS. BAE stock was down nearly 6 per cent at one stage.
The credibility of the conspiracy theory is helped when it is recalled that BAE did not pre-warn EADS about its decision to exercise its put option. EADS only knew BAE wanted to sell the 20 per cent to the parent when news hit the headlines back in April. If the two sides are not close enough to talk ahead of time about a sensitive issue such as this, it is quite plausible that EADS feels it owes BAE no favours.
More grist to the conspiracists’ mill comes with the expectation that EADS expects to deliver good news at the time of the Farnborough Air Show, the annual aero industry jamboree-cum-trade fair in Surrey every July. If the good news comes, it may be the first thing EADS investors have to shout about since — oooooh — since BAE said it wanted to exercise the put option back in April.
At the same time, the nature of the difficulties owned up to by EADS appears, on the surface at least, to be relatively minor. Yes, it is awkward to have to tell any customers that there will be delays on delivery. But it is only a six or seven- month delay — and in the context of such a big engineering project such as the construction of the new superjumbo jet, that is not a long time.
In addition, as EADS was at pains to emphasise yesterday, the problems concern the internal electronics. We are not quite talking about window dressing, but there are absolutely no questions being raised over the flight-worthiness of EADS’s new big bird.
If EADS really is playing silly muffins with BAE, it is surely ruing the hour it decided to embark on such a hare-brained scheme. If there is less to the Airbus warning than meets the eye, the investment bank experts hired to set the price of the put option will surely see through the shenanigan. Moreover, the credibility of the senior management will suffer irreparable damage.
EADS investors will hope that the market is over-reacting for one reason or another, however, because the alternative is too horrid to contemplate. If the market is right to believe that EADS is worth 26 per cent less today than it was on Tuesday morning, something is going very wrong at the company. If EADS shares deserve to be pasted in the manner they were yesterday, there must be some sort of systemic problem within the organisation. There will be those who point to the additional, separate issues involving a rethinking of the design of the smaller A350 jet as suggesting that Airbus is careering off the rails. But even so, it is hard to make sense of the 26 per cent stock price collapse.
Perhaps it is an old-fashioned cock-up, rather than either of these conspiracy theories, that lies at the heart of yesterday’s events. Aided and abetted by feelings of shock and the ongoing uncertainty, it probably is.
Goldman drops anchor
WILL the good ship SS Goldman Sachs, repulsed in several sorties in recent months, find Associated British Ports a more accommodating berth? A rival consortium led by 3i and Macquarie Bank is threatening to hole Goldman’s intentions below the waterline. The purchase of shares in ABP at a price above the 810p agreed between Goldman and ABP suggests that 3i and Macquarie mean business. The arrivistes also have time on their side: closure of this deal does not come until the middle of August.
Nevertheless — and in contrast to its recent abortive approaches for ITV, Mitchells & Butlers and BAA, all is not lost for Goldman. Indeed, it looks to be holding pole position. Its £2.5 billion offer has the blessing of the ABP board. The directors have promised not to solicit other bids and there is a hefty break fee of £24 million. The newly arrived bid party, meanwhile, looks as yet unformed.
First-mover advantage still counts for a lot in merger and acquisitions activity. Ferrovial’s bold initial approach to BAA was a key factor in its ultimate victory. Goldman always looked one step behind the pace in that battle and 3i/Macquarie look to have a lot of catching up to do if there are to pinch ABP from beneath the nose of Goldman.
Having come second in an embarrassing number of recent deal races, Goldman may know too well what it is to lose out. Meanwhile, the experience of coming second equips Goldman with intimate and up-to-date knowledge of how best to stymie, as well how painful it is to be stymied.
At this stage, it would be unwise to bet against Goldman.
Four warned
THE whittling down of auditing firms to a Big Four is a real worry. UK plc needs more choice and more competition and the Big Four do not provide either in sufficient quantity. Ninety-nine of the FTSE 100 and 97 per cent of UK Listed midcaps use either Deloitte, Ernst & Young, KPMG, or PricewaterhouseCoopers. There are strong forces pushing the world to ever fewer, ever bigger, audit firms. Large international companies want and need large international beancounters with the necessary geographic spread and sector expertise. Investors, it is often assumed, would not countenance the presence of a second-tier accountant either.
It is therefore most welcome to see the Association of British Insurers, a representative body for institutional investors, say that companies need not feel obliged to use a Big Four firm.
But which big company will be first to jump?
Fine words
ED BALLS’s first speech as Economic Secretary to the Treasury, delivered yesterday to a City audience, is full of sound intentions. London must retain its position as the world’s greatest financial centre, he said. The regulatory burdens must be fair and far from overweening, he added. Tax policies must do nothing to hinder the health and development of London.
These are fine words, Mr Balls. But the true test of your tenure will come when — or perhaps if — you review your achievements in the last speech you give as Ec Sec.
