TCI pushes EADS to ditch Dassault stake

TCI, the activist hedge fund, has written to the chief executive of EADS to demand it sell one of its most sensitive assets in a direct challenge to the defence company's management and the French government.

The hedge fund - whose aggressive activist style has earned it notoriety among European companies - has told Tom Enders, EADS' chief executive, that the company should sell immediately its €4bn stake in Dassault Aviation, a strategically important French defence player and the maker of the Rafale fighter jet.

In a letter sent to Mr Enders on Friday, which has been seen by the Financial Times, TCI said EADS' Dassault stake was "a poor use of capital" with "no synergies" and "limited strategic value".

"You have stated consistently that EADS is now a 'normal company', run for profits and the interest of public shareholders," the letter says. "This will be an important test of that principle . . . We see no justification for any delay in starting the sale process."

The company should use the proceeds of the sale to buy back shares or pay a special dividend, TCI said. The hedge fund, which has made big profits from its activist bets in the past two years and is up 27 per cent so far this year, owns "materially in excess of" 1 per cent of EADS shares, according to the letter.

TCI's challenge puts Mr Enders in a particularly sensitive position and comes just days after he unveiled a significant restructuring of EADS, which is to be rebranded Airbus. He held up the new restructuring as an example of how the group was now free to make strategic decisions unhindered by government interference.

"Governments have no say in our strategy, absolutely not," he said in an interview.

Mr Enders told analysts that EADS would review its minority holdings, adding that: "The strategy (is), clearly, wherever possible to be in businesses we control."

TCI intends to publicly hold Mr Enders to that promise, a person at the London-based hedge fund said.

EADS declined to comment on the TCI letter.

A person close to EADS said the Dassault stake yielded a "nice" dividend, but senior management were likely to be sympathetic to TCI's case as there was no strategic synergies from the shareholding. However, a shareholder pact with Paris meant EADS is not free to sell.

EADS and the French government, which still holds a 12 per cent stake in EADS, cemented the pact in June, confirmed last month by AMF, France's market regulator, that obliges the company to consult Paris on any major decision concerning its stake in Dassault Aviation.

The 90-year agreement, under which the French state took on a single, symbolic share in Dassault, also gives Paris pre-emption rights over the sale of any part of the shareholding, which it regards as a strategic asset in France's defence industry.

The socialist government has a policy of selling down some of the French state's big equity stakes in companies, which total some €100bn.

But it is committed to retaining control of key strategic holdings, including in the defence sector, and has given no indication to date that it is prepared to offload or buy back the Dassault stake, which was moved from state control into EADS when the latter was founded in 2000.

Under severe pressure to reduce the budget deficit and France's high public debt, the state is also ill-placed to buy back the shareholding even if it wanted to. Still, as the pre-emption pact testifies, it would be extremely sensitive about any sale to a third party.

A French government official said Paris had not yet been informed of the TCI demand and offered no further comment.

Dassault, presided over by 88-year-old Serge Dassault, holds a 26 per cent stake in Thales, Europe's biggest defence electronics maker, and also manages the French state's 27 per cent stake in the company.

There has been longstanding speculation that Paris might move to force a consolidation involving Dassault, Thales and Safran, the jet engine maker in which the state is also a large shareholder. But Dassault has strongly resisted and the current government has shown little appetite to force the issue.

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