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13 Jan 06. Peggy Hollinger of the FT reported that Thales is ready to go on the acquisition trail after cutting debt and booking a record number of orders in 2005, according to its chief executive, Denis Ranque.

The French defence electronics group, which for much of 2004 and 2005 was the focus of takeover speculation, is more likely to go on the offensive to seek acquisitions in the UK, US, China, India and Russia, the chief executive said in his new year’s speech.

“The work done to refocus the business strategicallyas well as the good operational cashflow combined to make 2005 another year of debt reduction,” said Mr Ranque. “Thales has recovered the financial room for manoeuvre to enter an acquisition phase.”

Thales’s last annual report showed a decline in net debt from €1.9bn ($2.3bn) in 2000 to €841m in 2004. Debt for 2005 will be reported in March.

Mr Ranque also expressed his disappointment over Thales’s failure to win the race for German marine defence group Atlas Elek-tronik, to be bought by ThyssenKrupp of Germany and Airbus’s Franco-German parent, EADS. Mr Ranque said the contest had revealed a “worrying” current of nationalism in Germany, in the face of the French company’s bid.

However, he said Thales would now target acquisitions in the US and UK in the fields of land systems – providing communications networks to the world’s armed forces – and security, which offers, for example, point of sale equipment to businesses or encryption services to banks. In Russia, China, India and Turkey, Mr Ranque said Thales hoped to take part in any future defence privatisations. He did not specify the amount set aside for acquisitions or name any targets.
Mr Ranque’s speech was an upbeat assessment of Thales’s achievements over the past year, citing record orders of €12bn on the group’s books. He made no reference to recurring speculation over a bid from EADS, except to say that Thales had proved in 2005 its all-round resistance on several fronts, “and I say that without any irony”, he said.

However, analysts said sizeable acquisitions were unlikely. Defence privatisations were likely to take some time, and would be politically controversial, while affordable targets in the UK and US were hard to find. One analyst said the French group would be better off saving its resources to boost its share in DCN, the state-controlled military shipbuilder, when political conditions allowed.

Thales last month agreed to inject its naval assets into DCN in return for a 25 per cent stake.

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