10 Mar 04. Paul Betts of the FT reported on the fact that the temptation must be great for Arnaud Lagardère: to shed his core shareholding in the EADS defence and aeronautics group to transform his company into one of the world’s top three media groups. We reported on this situation last year in BATTLESPACE UPDATE

Since his father’s death last year, Lagardère junior has made no secret of his ambition to become France’s new media champion. This week he again said he would consider disposing of his EADS stake once the new Airbus A380 superjumbo, his father’s pet project, is delivered in 2006. That, and the likely disengagement of the other core shareholder, DaimlerChrysler, which wants to focus on cars, is beginning to exercise the collective minds of Paris, Berlin, and London. It would open fresh possibilities in pan-European industrial collaboration. Some are suggesting that replacing Lagardère and Daimler with BAE and Thales would create a dream team for EADS and Airbus.

But would it really be wise for Lagardère to give up on EADS just as the group is becoming increasingly bullish on its prospects? Lagardère shareholders would probably enjoy a smoother ride on board the A380 than on French airwaves.

Comment: On a number of occasions we have discussed the inclusion of Thales into EADS, depending on European rules requiring disposal of some of its avionics businesses and the formation of a super European operation. The delay in the formation of the EUROSYSTEMS enterprise between BAE and Finmeccanica may be explained by this statement. The current structure suggested above does not include Finmeccania’s EUROSYSTEMS segment which may have to be included to make this work. If such a deal did happen it would cut down on Europe’s ability to compete major C4I programmes from within and require Europe to allow the U.S. to strengthen its European presence as a counterweight to this leviathan. The strength of U.S. technology and business as outlined by yesterday’s Alvis/GD deal may result in further U.S. penetration of the European market.