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THALES LOOKS FOR ACQUISITIONS

THALES LOOKS FOR ACQUISITIONS AND TIES WITH ALCATEL

11 Mar 06. The FT reported that Denis Ranque, chief executive of Thales, yesterday offered his public support for closer ties between the French defence electronics company and Alcatel, the telecoms equipment group. Sources at AUSA suggested that Alcatel will inject its satellite business into Thales for a 30% share in the company. Tjhales’s results also suggested that the company will now make strategic acquisitions, starting with buying the rump of ADI it does not own.

The future of Thales has been in doubt for more than a year after a botched take-over attempt by EADS, the Franco-German aerospace and defence group. In spite of continued interest from EADS, Mr Ranque yesterday implied a tie-up with Alcatel would be more complementary.Talking about existing co-operation between Thales and Alcatel, he said:

“We have different styles of cooking but on the basis of using the same ingredients.”

Thales is keen to promote the development of “dual-use” technologies, which are developed for the military but have potentially lucrative civilian applications. One example is the creation of security systems for battlefield communications that could be used by telecoms companies. Alcatel already owns a 9.5 per cent stake in Thales. But proposals for strengthening the relationship are understood to include Alcatel injecting its satellite interests, currently in a joint venture with Italy’s Finmeccanica, into Thales for an increased stake of 30 per cent. Mr Ranque insisted Thales had not received any official approach for a stake purchase from any party and said the company was strong enough to continue independently.

But he said “our co-operation with Alcatel becomes deeper and stronger every year. We are constantly talking to them and there are several ideas for how this relationship might move forward.” Any possible deal would need to win the clearance of the French government, which owns a 31 per cent stake in Thales. However, some observers feel movement could be slow ahead of next year’s presidential election and political support for a deal is not guaranteed. EADS is likely to mount a sustained lobbying campaign in Paris to promote its own role in any consolidation plan.

Noël Forgeard, the French co-chief executive of EADS, last week repeated his support for a possible takeover of Thales but said no discussions were under way.

“I still think a link would make sense,” he said. “But we have no mandate from our board to go in that direction.”

A Thales/Alcatel tie-up would also rely on continued strong relations between Mr Ranque and Serge Tchuruk, the veteran chief executive of Alcatel. Mr Tchurukhas said previously that he could reduce his Thales stake.

Separately yesterday, Thales reported net income of €334m ($397m) in 2005, up from €326m the year before on sales that were flat at €10.3bn. Free cash flow rose from €86m to €258m, while net debt fell to €398m from €860m.

In 2005, consolidated revenues remained stable at €10.3 billion, while underlying organic growth was 3.8%, after exchange rate fluctuations (+€15m) and change in the scope of consolidation (-€37m) and excluding the no-margin billing for the hull of the third and last Sawari 2 frigate in December 2004 (€375m).

In 2005, all Group divisions, except the Naval division, contributed to the 3.8%-growth in revenue with some variations among sectors.
Aerospace division revenues grew by 9% over 2005 and benefited from a highly favourable environment in avionics. Revenues in the Air Systems division saw a 7% increase, sustained by the growth in billings in the air defence activities. The 7% increase in revenues recorded by the Security division is the result of higher sales from the components business for medical and space applications and from the GPS navigation activity, although it experienced a slowdown in growth in the last quarter 2005. Growth in t

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