Paris: Activist hedge fund TCI has written to Eads’ chief executive demanding the aerospace company sell its stake in Dassault Aviation, maker of the Rafale fighter jet, saying the €4 billion ($5.3 billion) holding was “a poor use of capital” and the proceeds should be given to shareholders.

The move is the first time a shareholder has questioned the group’s strategy since its corporate governance change in April and shows how Eads is increasingly facing market pressures. But it also makes clear the limits to its claim to be a normal company that takes independent decisions.

Eads has an agreement to “warehouse” the Dassault stake, which it inherited from Aerospatiale — the French state company that helped found Eads in 2000 — on behalf of the French government.

So far there has been no indication that the French government would be prepared to end the arrangement with Eads.

No one at the French finance ministry was immediately available to comment.

In a letter sent to Tom Enders on Friday, which has been seen by Reuters, TCI said Eads’ 46 per cent stake provided “no synergies” and had “limited strategic value” to the group, which plans to combine its defence and space units and take the name of its flagship brand Airbus.

TCI, which holds more than 1 per cent of Eads’ share capital, said the stake should be sold either via a trade sale or public offering, suggesting proceeds should be used to buy back shares or pay a special dividend.

“TCI is a shareholder and we recognise that they have communicated their views, which is their right as a shareholder,” an Eads spokesman said in an e-mailed statement to Reuters. “We will keep shareholders fully appraised of our plans and progress,” he added.

Final say

The Financial Times cited a person close to the French group saying that senior management was likely to be sympathetic to TCI, but a shareholder pact with the French government, which controls 12 per cent of Eads, meantEads would not be free to sell.

Even though the French government no longer has a veto over Eads’ strategy, it still has a final say over what Eads does with its Dassault stake.

TCI partner Ben Walker told Reuters that the fund had not spoken to other shareholders about the matter, but added that they were likely agree with its letter.

“Eads will clearly need the permission of the French government to sell the stake. We want to get all parties to table to reach a decision,” he said. “The consolidation of the French defence industry is long overdue.” In a conference call with analysts last week, Enders said the group would look into its minority stakes as it prepares to combine its defence and space units.

“But this strategy will be executed where we can execute it, we’ll not make announcements upfront,” he said. “ After a decade of Franco-German control under a pact between France and two industrial partners, French media group Lagardere

and German carmaker Daimler, Eads changed its corporate governance in April to allow the industrial shareholders to exit and the German government to take part of Daimler’s stake.

The structure has boosted the free-market float from 50 per cent to 70 per cent of the shares and has capped the combined French, German and Spanish government stakes at 28 per cent — below the 30 per cent threshold for triggering a mandatory bid.

Eads shares were trading 0.3 per cent lower at 0936 GMT, in line with the CAC40 blue chip index.

Activist fund

Headed by Chris Copper-Hohn, media-shy TCI is one of the best-known activist hedge funds and has a record of rallying other shareholders behind its campaigns to shake up a company’s management.

It hit the headlines in 2007 for its role in the sale of Dutch bank ABN Amro, and among the high-profile executive scalps it has claimed were Deutsche Boerse’s then chairman and CEO following a row about its bid for the London Stock Exchange.

However, not all its efforts have been so successful. TCI suffered a bruising in 2008 when it ran into trouble in a tussle with Japanese electricity firm J-Power, losing a reported $130 million and dragging its main fund to a 40 per cent loss.

More recently, TCI’s performance has rebounded. Recent targets include French aerospace group Safran, which it told last October to stop making “value destructive” acquisitions and return cash to shareholders instead.

Last year it also agitated for change at Coal India, where it challenged the Indian government, the firm’s largest shareholder, for putting pressure on the company to sell assets at below-market prices and exercising excessive control over strategy and growth plans.