It’s clear that Qatar will end up with a large stake in EADS, maker of Airbus and military aircrafts, at some point in the near future, possibly within the next month. Not only is it Germany’s only option, it’s also Germany’s best option.

It’s probably best to start out a little about EADS ownership, which is quite complex. See chart below from EADS. Essentially France and German have ensured that either their government or a safe secured company of their nationality control their potion of EADS’ stake.
Daimler directly owns 15% of EADS and has loaned out an additional ~7.5% to German financial investors (like I said, complex). Daimler would like to disinvest itself of 7.5% now and their remaining holdings in the near future. Daimler has considered their stake to be non-core and they have taken a financial hit with their EADS stake. They announced their disinvestment plans  last February.

In addition, Lagardère is expected to sell a 7.5 stake after the French presidential election next Spring. I’m not sure if this sale is dependent on which party wins the election or its just to avoid the political issue dominating the election.

Getting back to Daimler, Germany’s government has been trying to find somebody, anybody within Germany to take the stake which is worth about $2.5 billion. They haven’t. This FT’s piece has a good overview.

The government has discussed using their state development bank, KfW,  to takeover the holdings but there’s huge disagreement within the coalition government over that option. While Merkal appears to support the idea, some of her coalition partners are less than thrilled with increased state involvement. It also doesn’t quite make sense for KfW to use their capital now with possible looming issues owing to slowing economy and the sovereign debt crisis affecting the eurozone. KfW might end up having to use their capital for more emergency investments. What financial institution would want to take on this investments, knowing they can’t sell it off on the market when times are tough?

German firms are balking and the government isn’t willing to to use their state bank to purchase the stake. Daimler wants this settled quickly.  All of this leaves a opening for Qatar.

Qatar wants EADS and it has been interested for several years. There were rumors a few years that the Qatar, using the Qatar Investment Authority purchased a small stake in the company by purchasing listed shares. It’s quite possible that the QIA does, in fact, have some kind of stake that’s below regulatory reporting requirements. The QIA has  6.22% voting rights in Lagardère. At the time, I thought investment in Lagardère was a play that would lead to EADS.

Besides the immediacy of the situation, there’s two major factors working in Qatar’s favor. The first is it has built up amazing political capital within France and Germany (while France is not directly involved with the Daimler, it would throw a fit if Germany sold it to a company or a country that it doesn’t approve of) If there’s one country that has committed to Europe over the last year as it has faced its sovereign debt crisis, it’s Qatar. Qatar has pledged $5 billion to Greece. Qatar has also made pledges of support to Germany and France’s economy. It has also backed up these pledges by continuing to make investments in both countries. There was even serious nogations over Qatar taking a stake in the French nuclear giant Areva

The second factor is Qatar would keep the status quo within EADS. The biggest single reason that Germany and France has insisted upon some type of ownership of EADS is jobs. Both countries want to keep them in their countries. They feel that if they lose ownership of the company, EADS would reverse years of corporate culture and decide to be efficient. This finding of efficiency would mean factories/jobs being move to other countries or regions. While not a full on guarantee, Qatar acquiring a stake would not be the worst nightmare for those German and France employees. Qatar would not force EADS to set up plants in their country. Jobs would be kept. EADS might start seeing more orders from some Qatari companies. There also might be a few JV set up between Qatari and EADS. Qatar would be more than happy to take part in any cash infusions EADS might need.

I might be oversimplifying the political issue that would surround the investment by Qatar. This is EADS. This is the French. This is the Germans. This is all three combined. But I truly think that Germany and its politicians have bigger things to worry about. An investment by Qatar would be welcomed, maybe not with open arms but won’t be come close to a Dubai Ports political scene.

So in my view, Qatar will be a owner of a large stake in EADS within the next year. I think Daimler will sell Qatar the the 7.5% stake outright within the next month. Daimler and Germany will wait for the other half until Lagardère sells its stake next year. Qatar will pick that other stake. Now about that Lagardère stake...