LONDON: Shareholders of BAE Systems were sorely disappointed today after investment bank NM Rothschild reported a lower than expected value of the company’s stake in Airbus.

The defense equipment contractor was considering selling its 20 percent holdings in the plane maker and investing the amount into profitable acquisitions overseas, particularly in the US. Rothschild evaluated BAE’s percent stake in the struggling Airbus to be worth €2.75bn ($3.5bn). BAE’s net proceeds, after paying off outstanding loans and transaction costs, would be €1.65bn ($2.1bn).

The lower valuation has disappointed BAE shareholders and analysts who estimated the stake to be worth at least €4bn ($5.1bn). Shareholders are comparing the amount with the $10.7bn (including goodwill) reported in BAE’s last year’s balance sheet.

BAE was exercising a put option to sell its holding to Airbus’ partner European Aeronautics & Defense & Space Co. (EADS) which owns the majority 80 percent stake in the plane maker. Rothschild was asked to determine the value because neither BAE nor EADS could agree to a price for the stake.

According to the put option BAE would have to sell its holdings to EADS at the price determined by Rothschild but BAE shareholders could vote against the deal. If BAE chooses not to back out it could later sue both EADS and Airbus for failing to keep shareholders updated about its financial problems and the value of their stake. In an announcement last month Airbus had told shareholders of the likely delays in completing the A380 double-decker planes. Analysts pointed out that Airbus faced other challenges as well which include finding buyers for the new planes.

The affair compelled both the company bosses - Airbus chief executive Gustav Humbert and EADS co-CEO Noel Forgeard to put in their papers yesterday. Shareholders had already been expecting Forgeard to leave after much bad press that pointed to suspected insider trading when he and other EADS executives offloaded Airbus shares in March.

If BAE offloads its holdings in Airbus, the deal would make a dent in its near-term earnings although improving its financial position.