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By Guy Anderson JDIN Editor

The board of BAE Systems has advised shareholders to back the sale of its 20 per cent minority stake in Airbus for EUR1.784 billion (USD2.28 billion), arguing that the aircraft manufacturer faces a "challenging short-to-medium-term outlook".

If approved by shareholders, the holding will be sold to majority owner EADS for EUR2.75 billion - the sum put forward by independent auditor Rothschild after the two parties failed to reach an agreement.

In a statement to investors released at 17.48 BST on 6 September, the group added: "The board believes that a significant amount of management focus, time and investment will be required to address the issues currently facing Airbus to improve its operating and financial performance and thereby to increase its value.

The price BAE Systems is asking shareholders to accept (an extraordinary meeting will now be called) is significantly lower than the EUR5 billion anticipated by the markets, and even lower than the figure of EUR3.5 billion that had previously been raised by EADS. Sources within BAE Systems have said the group was "surprised and unhappy" at Rothschild's valuation, and in July, PricewaterhouseCoopers was appointed to complete an audit of the business.

Shares in BAE Systems closed on the London Stock Exchange at 377.50 p prior to the 6 September announcement - a 0.92 per cent dip on the previous close.

© 2006 Jane's Information Group