ALEXANDER CAMPBELL / LONDON
French manufacturer dismisses UK bosses' claim of merger offer, but analysts see suggestion as bargaining tactic
A war of words broke out last week between the UK's two largest defence prime contractors with claim and counter claim about a merger offer.
BAE Systems chief executive Mike Turner said he received an informal merger offer from his Thales counterpart Denis Ranque late last month, that he rejected. Thales rubbished the suggestion, adding: "Thales has no plans and no intention to merge with BAE Systems, and therefore has of course made no proposal of this sort." Reports say Turner telephoned Ranque to apologise.
In an interview with Flight International, BAE chairman Sir Richard Evans said: "I'm not surprised Thales said that; they will make whatever statements they choose."
Industry analysts believe the spat may have been a negotiating tactic and point out that any merger would face considerable obstacles. The UK Department of Trade and Industry refuses to comment, but anti-competitive concerns would make the merger unlikely, says Bank of America analyst Nick Fothergill.
"The UK [government] is very keen to see Thales trading separately," he says, pointing to a raft of Thales/BAE competitions. A merger would effectively leave the UK with one manufacturer in many defence sectors. Evans says: "I can imagine the competition guys taking a certain amount of interest if we decided to join up."
Turner has, meanwhile, made no secret of his ambitions for closer links to the USA and a UK/French company would face political barriers if it tried to buy into the USA.
Analyst Ben Fidler of Deutsche Bank asks: "Why would BAE do a deal in Europe when its focus is on the USA? Is it Mike Turner showing how popular BAE is with everybody? "If BAE were in merger negotiations with a US company, publicising a rival approach would put pressure on the US bidder, "but this is all conjecture", Fidler says.
Alternatively, the move may have been intended to put pressure on the French government, Fothergill says. "I have heard that if BAE manages a transatlantic move, the French government will promote a Thales-EADS merger." Thales is 32% owned by the French state, and EADS is 30% owned by the SOGEADE holding company, in turn controlled by Lagardére and the French government; talk of a BAE merger could be an attempt by Thales to preserve its independence.
Fidler says: "Thales sees - rightly - that its own defence business is of higher quality than EADS's, and doesn't want it diluted." A Thales/EADS merger would also lead to tension with the German government, as EADS would become a majority French-owned company.
Source: Flight International
