- Boeing walks away from the $4.2 billion deal to buy the commercial jets division of Embraer
- Two proxy advising firms recommend to shareholders of Boeing to remove five key board members
- Boeing stock price will most likely open lower on Monday, after dropping 16% last week
- The sellers, who are still in control, are eyeing levels below $100
Shares of Boeing (NYSE:BA) plunged 16% lower this week, while this weekend headlines are set to create more troubles for the airliner. On Saturday, the company said it is walking away from a $4.2 billion Embraer deal, while two separate proxy advisers call for the sacking of five key board members.
Boeing pulls out of the Embraer deal
Today, Boeing announced it has decided to pull out of the $4.2 billion deal to buy the commercial jets division of Embraer, one of the biggest airplane builders in the world. The embattled US-based company said that Embraer failed to meet certain conditions for the deal to go through, according to Boeing’s statement.
“Boeing has worked diligently over more than two years to finalize its transaction with Embraer. Over the past several months, we had productive but ultimately unsuccessful negotiations about unsatisfied MTA [Master Transaction Agreement] conditions,” said Marc Allen, president of Embraer Partnership & Group Operations at Boeing.
“We all aimed to resolve those by the initial termination date, but it didn’t happen. It is deeply disappointing. But we have reached a point where continued negotiation within the framework of the MTA is not going to resolve the outstanding issues.”
The envisaged partnership between the two airline producers received all the necessary approvals from regulatory bodies, except from the European Commission. Under the MTA, April 24 was the cut-off date, which Boeing used to terminate the agreement with Embraer.
Boeing’s initial aim was to use Embrare’s capacity to manufacture commercial jets to compete with its biggest competitor, Europe’s Airbus, in the area of midsize planes of up to 150 seats.
The agreement, which was terminated by Boeing yesterday, dated from July 2018, when the US-based airliner agreed to pay $4.2 billion for a 80% stake in Embraer’s commercial jet unit. The Brazilian jet manufacturer argued in 2018 that the deal was crucial for the company to survive.
“Given the current economic reality of the global aviation market, it can be seen that the operation with Boeing is not just beneficial to Embraer, it is fundamental to the survival of the company,” said Embraer then.
Following Boeing’s statement earlier today, the Brazilian airline giant has now fired back saying that Boeing “wrongfully terminated” the joint venture program. Frustrations on their part are understandable, as the company increased its costs over the last few months to separate its commercial unit from the rest of the company and have it ready for Boeing’s takeover.
“[Boeing] manufactured false claims as a pretext to seek to avoid its commitments to close the transaction and pay Embraer the US$4.2 billion purchase price,” Embraer said in a statement.
“We believe Boeing has engaged in a systematic pattern of delay and repeated violations of the MTA, because of its unwillingness to complete the transaction in light of its own financial condition and 737 MAX and other business and reputational problems.”
Proxy advisers suggest company to oust key board members
Separately, proxy advisers have recommended to shareholders of Boeing to oust five key board members, including the chairman of the board Larry Kellner, who previously led the board’s audit committee. Glass Lewis and Institutional Shareholder Services (ISS) issued separate recommendations in relation to the company’s handling of the 737 Max crisis.
“We believe the audit committee failed to mitigate the risk posed by management’s decisions and should be held accountable for its oversight,” Glass Lewis said in the recommendation.
The ISS, on the other hand, is recommending to fire four other board members – Arthur Collins, Edmund Giambastiani, Susan Schwab and Ronald Williams – for their role in the 737 MAX crisis.
Earlier this month, Invezz reported on Boeing’s plans to slash its workforce by around 10% to cut costs amidst the rising financial challenges due to the COVID-19 outbreak.
Disclaimer: This information is only for educational purposes. Do not make any investment decisions based on the information in this article. Do you own due diligence.