Wing and a prayer

What’s happened?

When George Rose, group financial director of defence company BAE Systems,
takes his place on the platform at the company’s AGM today at the QEII Centre in
London, there will be a number of issues weighing on his and the rest of the
board’s mind.

The protest by PIRC, the investment consultancy, over his boss’s pay packet
will probably only be a side show, albeit it a public one. The consultancy is
advising investors to oppose the remuneration report as potential awards to
chief executive Mike Turner could be worth more than three times his £870,000
base salary.

Instead, it is the upcoming round of acquisitions and disposals that will be
focusing the mind of the man who, among other things, sits on the Financial
Reporting Review Panel.

What’s next?

BAE Systems is trying to offload its 20% share of Airbus to EADS, the
Franco-German company that owns the remaining 80% of the commercial aircraft

The negotiations failed to take off after Thomas Enders, co-chief executive
of EADS, hinted that the two sides were far apart in terms of price.

‘Understandably, the British want to achieve an astronomically high price and
understandably we want to pay a fair price,’ he said. So tough negotiating lies
ahead before a price is agreed. Analysts believe a price tag of between £4.5bn
and £5bn would make the deal fly.

But BAE needs the money if it is to deliver on its aim of making significant
acquisitions, both here and in the US.

Speculation has been rife that the company is lining up US defence and
communications specialist L3, but to do so, BAE would need a war chest of more
than £5bn. That would be some figure for Rose to find and, to date, the
aerospace and defence group has played down such speculation, dismissing reports
as having no substance.

However, BAE has confirmed its interest in Babcock, the asset management
group. It is planning a joint bid with VT Group, but has been given a ‘put up or
shut up’ deadline of 18 May to make a bid.

So as Rose and the rest of the board wave goodbye to non-executive Michael
Portillo, the former Tory MP, who stands down at the AGM today, they must be
hoping it will not be long before they can do the same to Airbus.

Ground Control

• BAE Systems made an operating profit of £900m on sales of £15.4bn in 2005,
up from £774m in 2004
• It has operations in five continents, and employs more than 100,000 people

• Seven brokers say BAE is a ‘buy’, while five say ‘hold’. No one is saying
‘sell’ at the moment
• Seven chief executive Mike Turner’s base salary is £870,000, while FD George
Rose can expect to take home a basic wage of £530,000 excluding bonuses

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