Top BAE shareholder opposes defence group's proposed tie-up

BAE Systems’ largest shareholder yesterday signalled its “significant reservations” about the defence group’s proposed tie-up with EADS. Invesco Perpetual, which owns more than 13 per cent of BAE, outlined in a statement its concerns about the structure of the €35 billion transaction and its likely impact on shareholder value.

The fund manager has hired an MA boutique, Ondra Partners, to advise it.

Invesco has long been a critic of BAE’s acquisition strategy, and has urged the group’s management to return more capital to investors. In correspondence seen by the Financial Times, Neil Woodford, its head of UK equities, last year warned Dick Olver, BAE’s chairman, that the company’s “unacceptable” focus on dealmaking was responsible for the low rating of its shares.

The fund manager decided to go public after expressing its concerns about the proposed deal to BAE’s chief executive, Ian King, at a meeting last month.

Its intervention comes at a critical moment for the transaction, with the British, French and German governments still wrangling over the political safeguards they require before giving it their approval.

Philip Hammond, the British defence secretary, said on Sunday that the UK government would not back the deal unless there was a marked reduction of the German and French stakes in the business.

It was a “red line” issue for Britain that both the other governments abandoned their ability to control the combined company, he said, adding that the UK government was prepared to use its golden share in BAE to veto a deal.

While Invesco does not have sufficient votes to block the deal, its opposition adds another obstacle for BAE.

Another top 10 shareholder said: “We have been sceptical from the outset about this deal, both from a strategic and commercial viewpoint. Neil has similar views to us. We have ... felt that it has too many political hurdles. Our view is that this deal may be close to collapsing.” – (Copyright The Financial Times Limited 2012)