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Aircraft industry

BAE Systems Faces Pressure Over Low Airbus Valuation

Strategic Insights

— 2 min read

The board of BAE Systems is allegedly furious at the low valuation of its Airbus stake by investment bank Rothschilds, with the company's executives reportedly stunned by the estimated worth of £1.9bn, at least £1bn lower than BAE's hopes and £500m less than EADS' "conservative" valuation. The BAE board is set to meet next week to decide on a recommendation for an extraordinary shareholder meeting, which could reject, accept, or seek a new buyer for the stake. Several BAE directors are prepared to vote against accepting the valuation, citing it as "shockingly low," while others believe the company will ultimately accept it. Analysts are divided on the sale's prospects, with some predicting shareholders might reject the proposal, while others believe the sale will proceed despite the low valuation.

Key Takeaways:

  • The BAE board is expected to meet next week to decide on a recommendation for an extraordinary shareholder meeting to vote on the Airbus disposal.
  • Rothschilds' valuation of £1.9bn is at least £1bn less than BAE's hopes and £500m less than EADS' "conservative" valuation.
  • At least two BAE directors are understood to be ready to vote against accepting the valuation, arguing it is "shockingly low" and unacceptable.
  • Analysts are divided on the sale's prospects, with some predicting shareholders might reject the proposal.
  • Standard Life Investments owns about 3% of BAE's shares and believes the sale will proceed, despite the low valuation.
  • BAE's advisers calculate EADS' shares should be worth around €15 to reflect the low valuation on Airbus, while they closed at €22.28.
  • EADS owns the remaining 80% of Airbus and possesses other significant assets, including Euro-copter and MBDA.
  • Rothschilds' valuation not include any premium for full management control that EADS will assume by taking over 100% ownership.
  • BAE faces pressure to sell the asset, which it considers non-core, and risks further decline in value if the dollar weakens and costs escalate on the Airbus A350 and A380 programmes.

Statistics:

  • £1.9bn: estimated worth of BAE's Airbus stake by Rothschilds
  • £1bn: difference between BAE's hopes and Rothschilds' valuation
  • £500m: difference between Rothschilds' valuation and EADS' "conservative" valuation
  • 3%: stake owned by Standard Life Investments in BAE's shares
  • 3.25%: decrease in BAE's shares price in response to the low valuation
  • €15: estimated value of EADS' shares to reflect the low valuation on Airbus
  • €22.28: closing price of EADS shares
  • €6bn: cash in EADS' balance sheet
  • 20%: BAE's stake in Airbus
  • 80%: EADS' stake in Airbus
  • 100%: EADS' ownership of Airbus after taking over BAE's stake

Sources:

  • Michael Harrison and Nic Fildes, The Telegraph (no specific date provided)

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