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BAE begins shake-up to assuage investors’ anger over failed deal
November 18, 2012
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LONDON: BAE Systems moved to respond to investor anger in the wake of the collapse of its merger with Eads, saying that the senior independent director Sir Peter Mason is to leave.

That comes just weeks after the defence giant insisted it was “fully supportive” of its directors in the wake of a letter from the largest shareholder, Invesco Perpetual, calling for the ousting of both Mason and chairman Dick Olver.

The £28 billion BAE-Eads merger was cancelled after political deadlock. Government concerns about the combination of Britain’s largest defence contractor and the owner of Airbus could not be overcome, with the UK, French and German administrations unable to come to an agreed position.

“It has become clear that the interests of the parties’ government stakeholders cannot be adequately reconciled with each other or with the objectives that BAE Systems and Eads established for the merger,” the companies said.

There were immediate calls for a boardroom shake-up, with Olver seen as the most vulnerable. BAE says it will stick with the plan for Olver to depart in 2014, claiming most shareholders support this stance.

Today it said that Mason — who is also the chairman of Thames Water — will also go, at the next annual meeting in May. Whether this will satisfy Invesco is unclear. It called for “significant change” in the boardroom and is concerned at the company’s growth prospects.

Nick Rose, already on the board, has been appointed to replace Mason and will be the man tasked with finding a replacement for Olver.

Rose, previously chief financial officer of drinks giant Diageo, joined BAE’s board two years ago.

Dick Olver said: “Sir Peter Mason has made an outstanding contribution to the BAE Systems board. As an engineer and business leader his deep understanding of the challenges of complex engineering projects and general wise counsel will be greatly missed. All directors would like to record their thanks for the contribution he has made to the board and the diligent and professional manner in which he has discharged his duties as senior independent director.”

Mason was paid pounds sterling 94,000 last year for his part-time role at BAE. The future of BAE chief executive Ian King is also unclear.

Petition

Ben Wallace, the Conservative MP for Wyre and Preston, who organised a petition against the deal signed by 45 MPs, said the deal should never have been promoted due to the threat of French and German political interference.

He said last month: “The BAE board should now reflect long and hard at what their strategic error could mean for the company’s future. If they have put at risk my constituents’ jobs and fatally wounded the UK’s jewel in the manufacturing crown, then they should consider their position.”

BAE Systems on Wednesday reached a settlement in its long-running dispute with Trinidad and Tobago over a cancelled offshore patrol boat order.

The settlement brings to a conclusion a disagreement that arose when Trinidad cancelled an order for the three boats following cost overruns and delays. The decision in 2010 came so late in the development phase of the contract that one of the three boats was ready to be delivered, prompting BAE to take a £100m charge.

Last year BAE was able to sell the boats to Brazil, tapping a new, lucrative naval market in a country looking to expand its defence presence, especially on its oil-rich coast line.

Even so, the settlement will come as a relief to BAE, which has been under pressure from investors since its planned tie-up with EADS was scuppered by political wrangling.

BAE said the settlement was “at an amount consistent with provisions held”.

Robert Stallard, analyst at RBC, said the deal should be seen as a positive development because it reduced the company’s political risk. He noted that by 2012 BAE had received about £130m as a working capital inflow from Brazil and had carried a trade liability of £125m in deferred income relative to the settlement.

“Today’s settlement is likely to be for £125m-£130m. There should be a net nil result in the working capital for the year as we understand Brazil has already paid for the ships,” he said in a note.

In 2009 BAE bought VT Group’s naval shipbuilding business after having formed a joint venture with the group. With it, BAE inherited a contract with Trinidad and Tobago, in which the government agreed to buy three offshore patrol vessels for £155m.

The order came in 2007 as BAE was finalising the joint venture with VT, combining the Portsmouth yard with those of BAE on the Clyde in Glasgow. At the time, the UK Ministry of Defence was pushing for such consolidation ahead of the expected drop in shipbuilding orders. Now, with that decrease having materialised, BAE is reviewing whether it should close one of its yards.

Agencies
 

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