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BAE Shareholders Call for Chairman To Quit Following Failed Merger

Oct. 23, 2012 - 08:39AM   |  
By ANDREW CHUTER   |   Comments
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Leading BAE shareholders are calling for a strategy refocus and the departure of Chairman Dick Olver in the wake of a failed merger attempt with EADS earlier this month.

Three leading investors, who together hold around 18 percent of BAE’s shares, have told the company board in a letter that Olver and Peter Mason, the senior independent director at Europe’s largest defense contractor, should step down due to “significant damage” caused by the merger attempt, the Financial Times reported.

In a statement, BAE rebutted the shareholders’ demands, saying its board stood behind Olver and other senior executives.

“The Board of BAE Systems remains fully supportive of its directors. The company maintains an ongoing dialogue with all of its stakeholders on matters of strategy, governance and performance. The company is aware that a minority of its institutional investors have recently made public their own views on board succession planning, which differ widely from those of the board and the majority of the company’s principal shareholders. The company intends to continue with its established succession plans described in its last annual report, including the appointment of a successor to Dick Olver as chairman following an appropriate process to identify the best candidates.”

Olver had been scheduled to retire from office in May 2013, but last year he agreed to remain in office for up to a year beyond the end of his third term in the role.

Mason is scheduled to give up his role as senior independent director in January.

The investors, led by Invesco Perpetual — the biggest single shareholder in BAE — used the letter to criticize what they called the company’s “misguided strategy” of being too reliant for growth on mergers and acquisitions over the past eight years.

The FT said the shareholders have called for a new chairman to institute an urgent review of strategy to refocus on the company’s core businesses.

BAE has so far declined to accept that it needs a strategy change following the failed attempt to create the world’s largest aerospace and defense company by merging with EADS.

Interviewed by Defense News immediately following the Oct. 10 decision to end the merger talks, BAE Chief Executive Ian King said the company’s core strategy of developing its international business, maximizing benefits from platforms and services, and growing electronics and cyber businesses still stands.

“Plan A is very robust. The business is very robust ..... Bolt-on acquisitions are fundamentally part of the strategy,” King said.

The merger talks were halted due to German government opposition to the move. Berlin is a stakeholder in EADS.

ShareSoc, a group representing individual shareholders, also weighed in Oct 23 and called for the resignation of Olver and King.

News that pressure was mounting on Olver to depart coincided with an announcement by defense equipment maker Chemring that its chief executive, David Price, is stepping down immediately and will be replaced by Mark Papworth, a former Wood Group senior executive.

The change comes as the company is in the middle of takeover talks with U.S. private equity firm Carlyle.

Papworth will take up the role of chief executive four days ahead of the Nov. 9 deadline for Carlyle to decide whether to proceed with a takeover of the $1.19 billion company, which has substantial parts of its operations in the U.S. and U.K.

Britain’s Takeover Panel has twice extended the deadline for a decision on the merger.

Analysts here found it curious that Chemring replaced its chief executive during merger talks. Some suggested it indicated the talks may be in difficulty.

The company has been hit by spending downturns in the U.S. and elsewhere and in August announced it would fail to meet full-year performance forecasts.

Papworth was formerly chief executive of the Gas Turbines Services division of the Woods Group, an oil services company. Before that, he spent two years as executive vice president of Rolls-Royce Energy, based in the U.S.

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