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EADS AND THALES MERGER RUMOURS REFUSE TO GO AWAY

25 Sep 03. BATTLESPACE has reported on countless occasions the growing rumours of the marriage between Thales and EADS, thus bolstering the latter’s electronics capability. The problems regarding the French Government bail-out of Alstom, which may eventually lead to the Alstom shipyards becoming the EADS of ship building, with Thales and DCN, leaves the French Government with a dilemma as to its 30% share of Thales. Although profitable and growing, Thales has lost out on a number of key contracts recently in the UK in particular and may prefer a grater role within EADS, whose electronic products segment, as we reported at DSEi, is now a separate entity. Should Thales become part of EADS this would pose a dilemma for Thales Avionics which is the major supplier to Airbus. The European Commission may require a divestment of Thales Avionics to a company such as Smiths (SEE ‘SMITHS REPORTS PROFIT RISE’). Although a supplier to the A380 programme, Smiths has long coveted a greater role in Airbus avionics. The company now has a £1.5bn war chest which some suggest that shareholders may require to the company to return in the form of a scrip dividend. However, if the management can make a case for an acquisition the companies in the firing line would be, apart from Thales Avionics, Cobham and Chemring, for the formers flight refuelling capability which Smiths is expanding and the latter’s flare business which Smiths ahs identified as a core growth area. A deal with Rockwell Collins now looks far off given that the company’s share price has doubled this year giving a value of £2bn+.

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