It is shaping up to be a long, hot, summer for Europe's defence-electronics industry. The pending privatisation of Thomson-CSF has already got strategists busy plotting and rivals initiating pre-emptive manoeuvres, with Europe's other major defence-electronics player, GEC-Marconi, leading the pack.
In the last couple of weeks, German industrial giant Siemens has relaunched the sale of its defence division with hopes of finding a buyer by September, and GEC has announced talks with Italy's Alenia Difesa to find areas of "collaboration" which it plans to wrap up by the end of June.
Siemens is understood to have had interest from GEC, Daimler-Benz Aerospace (Dasa) and Thomson-CSF, all of which were in the running two years ago when the German group first put up its defence-electronics business up for sale. Siemens finally took the division off the market at the end of 1995, saying that offers had failed to meet its expectations, despite a year of talks with Dasa.
British Aerospace could also be among the potential bidders this time round, with a possible interest in building up its command and control business.
It has already shown an appetite for German acquisitions through its stake in the STN Atlas naval-systems business.
Siemens acquired the bulk of its defence-electronics division in 1989 after UK military-electronics producer Plessey was split up in a joint purchase with GEC.
The division now has sales of around DM1.6 billion ($950 million) and employs a workforce of 5,000, with units in the USA and Australia, as well as the 1,300-strong German headquarters and the main Siemens Plessey operation in the UK, with 2,500 staff.
Although the division has continued to turn in profits, recording earnings of DM63 million in the last financial year to September, it does not represent a core business for the industrial giant. "We want to find a partner while we're in a position of strength, to give the business a better chance of long-term growth," says Siemens.
The renewed search for a partner comes as the whole European defence-electronics sector gears up for the pending frenzy of consolidation likely to be unleashed in the wake of the Thomson-CSF privatisation. The French mood appears to favour the renewed bid from Alcatel, now linked with Aerospatiale and Dassault. If successful, the group would apparently be divided up between the bidders to build multi-billion-franc operations in missiles, satellites and electronics.
Dassault Electronique, with its Fr4 billion sales in defence and civil electronics would also be thrown into the pot, while Thomson-CSF's controlling stake in Fr2 billion Sextant Avionique would be re-united with Aerospatiale's 34%share. Alcatel would put up its Fr8 billion military satellite-communications business.
Alcatel will have to see off Lagardère, however, whose Matra unit still harbours ambitions to take over Aerospatiale's missiles and space businesses if the French champion shows signs of faltering. Matra adds that, if the French Government accepts a carve-up of Thomson-CSF, the missiles business could still come its way.
While awaiting the results of the French machinations, Europe's other defence companies continue to circle in a holding pattern. What is already clear, however, is that the future is not going to favour the smaller niche players, as Siemens is aware.
Siemens itself is already in talks, "at an advanced stage", with Thomson-CSF over a joint venture for its Siemens-Plessey air-traffic-management unit.
GECis a likely front-runner for the defence side, given its ties with Siemens, including the GPT telecommunications business, which the two own jointly following the Plessey take-over - the only part of the acquisition they were allowed to run jointly. Financial analysts are speculating over the possibility of GECmaking a straight swap of its controlling 60%stake in GPT for the defence businesses.
Financial analysts suggest that Racal Electronics, which is tied to Siemens Plessey on the Archer combat-communications system aimed at the British Army, may also be another possible acquisition target for GEC as industry-wide consolidation raises the stakes.
Meanwhile, GEC has signed a memorandum of understanding with Finmeccanica to study possible areas of collaboration with the Italian group's recently created Alenia Difesa defence arm.
The two companies say that they recognise the growing need for "further consolidation of the European defence industry" and aim to have proposals ready for review by mid-year.
Alenia Difesa, established in September 1996 to bring together the defence-systems business now under the Finmeccanica umbrella, has sales of around L2.2 trillion ($1.3 billion) and employs 9,800. Its products centre on radar, missile, naval and avionics systems.
GEC-Marconi has been strengthening its position in Italy. In June 1996 it took full control of the L1 trillion Italian Marconi defence systems and communications group, originally set up in Italy as a joint venture with Alenia. Earlier this year, it grew again when Italian telecoms group Italtel agreed to put its defence-communications division into a joint venture 60%owned by Marconi. That brings GEC-Marconi's subsidiary's sales close to L1.5 trillion.
GEC is also in the throes of internal re-organisation following the 1996 arrival of George Simpson from Lucas as the company's new chief executive.
Source: Flight International