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16 May 02. Finmeccanica (Milan:SIFI.MI – News), made a statement on Thursday may 16th, following the announcement that the bulk of Marconi Italian would be floated on the Milan Stock market rather than sold to a trade buyer, with Finmeccania being the favourite (See BATTLESPACE UPDATE Vol.4 ISSUE 20
May 16th 2002). The company said that its offer to buy the mobile unit of stricken British telecom equipment maker Marconi (London:MONI.L – News)
was fair and must be taken into consideration.

“It appears that our offers are not generating great interest, even though we
think they deserve to be taken into consideration,” said Finmeccanica Chairman
Pier Francesco Guarguaglini at its shareholders meeting.

A number of factors are believed to have influenced the IPO decision, one of them may have been Finmeccanica’s worrying profits performance. Earlier in the week, Finmeccanica posted an 87 percent drop in first-quarter net profit, dragged down by lower income from its 18 percent stake in chipmaker STMicroelectronics (Milan:STM.MI – News; Paris:STM.PA – News).

“With regard to STM, things should get better. There are some positive aspects
which make us hope in a partial recovery in the second half of the year,” said
Chief Executive Roberto Testore. He also said that forecasts were positive for 2002.

Another key influence to the IPO decision is believed to be Marconi’s position in the Falcon, BOMAN Personal Role Radio (PRR) and FIST bids. The U.K. MoD is believed to be very pleased with the way that the PRR contract has been run putting the company in a favourable position to prime the FIST contract. However, falcon, the £$00m Ptarmigan replacement contract is a key part of the UK’s future defence communications systems strategy forming a key link with the Cogent Cormorant system and BOWMAN, and the ARC. The MoD appeared reluctant to deal with Marconi Communications whilst is formed part of the ailing Marconi to award a contract which would require a 25 year support programme. The MoD is believed to covet Marconi’s direct link to the huge civil telecomms operations and is believed to favour those contractors with strong civil links. This would appear, at first sight to favour EADS and Marconi, not BAE SYSTEMS.

However BAE SYSTEMS is the incumbent supplier and will benefit form any slippage in Falcon. A decision is due to be made after the bank holiday to the next stage which although MoD funded is believed to require an investment of some £4-6m by the successful parties. Two possible solutions, one costing some £65m and the larger £400m were requested. Although earlier PQs suggested that the MoD may be going down the cheaper route, sources suggest that falcon is now back on track for the larger requirement. Time scale for implementation is still unclear with some contractors suggesting further slippage.

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