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Activist investor tells Airbus to end Atos Evidian talks now

TCI Fund says buying stake in tech biz would be 'extremely inefficient use of shareholder funds'

Airbus should "immediately terminate negotiations" to buy a minority stake in Atos's breakaway security, big data and digital transformation business, Evidian, because it would be a costly mistake.

So says activist investor TCI Fund Management Limited, which has a 3 percent-plus shareholding in Airbus, valued at €4 billion ($4.269 billion), and wants to bring an end to talks with Atos that emerged last week.

"A minority 29.9 percent stake in Evidian would be an illiquid and distressed asset," writes TCI boss Christopher Hohn in a public letter to Airbus CEO Guillaume Faury.

"It would be stranded capital and an extremely inefficient use of shareholder funds. Investing in Evidian would also significantly dilute the quality of Airbus' business and investors would ascribe zero value to the stake," he adds.

Airbus could maintain relations without investing in Evidian, and already works with thousands of suppliers without owning any stock in them. Hohn said Airbus would own Evidian's operating losses, in a highly competitive tech market, and these could be "material."

"The transaction appears to be a bail out of Atos, a company that is burdened with unsustainable levels of debt and other liabilities. Airbus should therefore disclose whether any of the money it invests in Evidian will be used to pay down the debt or other liabilities of Atos."

In contrast, the outlook for Airbus is rosy with its dominant market share promising profits, and the aviation industry's high barriers to entry, sheltering shareholders from risk.

Hohn flattered and jabbed in equal measure, also telling Airbus it had "consistently missed" aircraft delivery targets – it delivered 661 commercial vehicles in 2022, 40 light of what was seen by some as a comparatively cautious projection.

"Management should therefore be totally focused on fixing the supply chain and delivering aircraft rather than being distracted by this agreement with Atos. Indeed, investors and customers will be questioning whether it is a coincidence that while management has been negotiating the deal, Airbus has just reported one of its lowest aircraft delivery months in the last 10 years," the letter says.

Atos is planning to carve its business in two later this year, with Evidian to be split off and traded as a separate public entity on the Paris stock exchange. The remainder of Atos – datacenter, hosting, BPO, digital workplace and unified comms – will be another distinct business.

An Atos shareholder has already criticized management, saying the turnaround effort to improve financial results is "too ambitious and complicated."

Turning the screws further on the Airbus board, the letter from TCI says the decision to proceed with the transaction raises questions about their governance.

"Airbus is already a hugely complex, multinational organisation and the executive team has always struggled to maintain full control over all the various programs and projects. Every year has brought new charges and delays. The last thing management needs is a new problem child to distract it from Airbus' core business, which for the first time in 20 years looks to be in good order," says the letter.

So how would Hohn prefer Airbus spend its "prodigious and rising cashflow"? Increasing dividends or buying back company stock were two possibilities proposed by TCI, which also told Google to make more layoffs.

Hohn points to previous comments from Atos chairman Bertrand Meunier about the Evidian stake ensuring "technical sovereignty in France."

The letter says: "If such a transaction with Evidian is consummated and there is evidence that it is, in part, a politically motivated and justified transaction, then all directors may be in breach of their fiduciary duty and we reserve our rights to litigate for shareholder damages and hold the directors personally liable for these damages."

TCI has filed a motion to be added to the agenda of Airbus AGM to ask a string of questions about the possible stake. ®

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