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26 Nov 04. The FT reported that for the past year, Denis Ranque, Thales’ boss, has been fighting a war of independence. The fact that his board has now asked him to examine different merger options for the French defence and civil electronics group – including with EADS – suggests he is losing the battle.

Part of his problem is that he is not master of his own destiny. He argues that Thales, after decades of restructurings and partial privatisation, is perfectly fit to fly on its own wings. But his main shareholders – the government, Alcatel and Dassault – think differently.

The other problem is that his “multi-domestic strategy” of establishing Thales as a key domestic player in different markets – the UK and Australia as well as France – has failed to live up to expectations. His critics say he should have continued focusing on the Middle East, which provided what used to be called Thomson CSF with its defence manna.

His other attempt to boost Thales’ naval activities, through a merger with the French state DCN naval group as a first step to wider European consolidation, has been blocked by Alcatel and Dassault. For while Paris continues to favour a Thales rapprochement with EADS, Alcatel and Dassault are keen to walk off with prime chunks of the company. It may take time, but they are likely to succeed. Dassault wants the avionics business which EADS, as an airframe maker, cannot absorb. Alcatel wants the communications activities, leaving EADS with the core defence electronics operations and a free hand to fulfil Mr Ranque’s naval ambitions.

On November 15th, Nicolas Sarkozy, French finance minister, yesterday sought to smooth over the rift with his German counterparts by ruling out any transaction involving EADS that would upset the delicate balance of national power in the Franco-German aerospace group.

“Whatever happens at EADS,” Mr Sarkozy said after a meeting with Wolfgang Clement, the German economics minister, in Berlin, “We both have a duty to maintain the equilibrium of this partnership.” Mr Sarkozy’s reassurances follow reports last week that Paris had been manoeuvring in concert with shareholders in Thales, the French electronics defence group, to engineer its partial takeover by EADS. Alcatel and Dassault together control almost 15 per cent of Thales and have indicated they would support a bid in exchange for certain assets.

In another development the British government has signaled its opposition to the merger, the Observer reported. Trade and Industry Secretary Patricia Hewitt has written to EADS’s German chairman, Manfred Bischoff, to voice Britain’s opposition after reports earlier this month of a plan for EADS to take over Thales to create a European competitor to the US behemoth Boeing. Defence Secretary Geoff Hoon is also believed to have voiced his opposition to a merger with French officials, which have supported a tie-up, the report said. Officials in London are concerned Thales would lose its independence in an EADS takeover, making it a less effective competitor for major British government contracts to BAE Systems.

The British defense ministry ‘has encouraged Thales to develop itself into a major player in the UK. It has an independent strategy and its management is independent-minded. The view is that would certainly be jeopardised if EADS took it over,’ the newspaper quoted an industry source as saying. EADS co-chairman Philippe Camus said on Thursday there were no plans for a merger.

But the matter was raised during talks in London on Thursday between French President Jacques Chirac and British Prime Minister Tony Blair.’ The president told Mr Blair that we have the willingness and the objective to consolidate Thales,’ said one of Chirac’s aides, who added that there was ‘no merger plan under way.’ France and Germany currently have equal influence at EADS with German carmaker DaimlerChyrsler holding a 30-pct stake and the French state a

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