Thales Group’s acquisition of Alcatel’s space business will not be followed by a Thales purchase of Europe’s other main satellite builder, EADS Astrium, anytime soon and would never occur before being thoroughly vetted by Europe’s satellite customers, Thales Chairman Denis Ranque said.

Seeking to dampen speculation that Thales will buy EADS Astrium as part of a French government-orchestrated maneuver to consolidate Europe’s defense-electronics industry, Ranque said satellite customers’ views are central to any future consolidation decisions.

“In a very competitive world, where the competition is global, with very big American players and emerging players in India and China, it’s possible that Europe cannot afford two champions,” Ranque said during an April 5 press briefing here following his company’s agreement to buy the Alcatel business.

“On the other hand, we haven’t heard from customers. In all this agitation in the past few days around satellites, no one — except me — has given much consideration to the customers’ concerns,” Ranque said. “What do the customers want? These activities live thanks to their customers and a singularly important customer in space is ESA. What does ESA want?”

The European Space Agency (ESA) and its biggest shareholder, the French space agency, CNES, have stayed out of the recent discussion of a possible consolidation of Alcatel Alenia Space and EADS Astrium under Thales, which would effectively create a European satellite monopoly.

CNES President Yannick d’Escatha refused to be drawn into the debate during an April 3 press briefing, saying it is not his agency’s role to set industrial policy for the French government.

The French government is Thales’ largest single shareholder and would have a say in any attempt by EADS Astrium’s parent company, European Aeronautic, Defense and Space Co., to strengthen its defense-electronics holdings by trading its satellite division for an ownership stake in Thales.

Pressed to state his views as a customer, d’Escatha said he would not necessarily oppose the creation of a satellite monopoly despite the presumed reduction in bargaining strength that agencies like his would have as a result.

CNES’s strategy “is compatible with whatever choice is made by the companies concerned — fusion or continued competition,” d’Escatha said. “We can work with them either way.”

One French government official said a merger that left Europe with a single large satellite prime contractor could force European governments to weigh non-European bids for government satellite work to keep the combined company honest.

“For most satellites today, we know more or less what the costs are,” this official said. “We would not be forced into writing blank checks. A merger would raise the possibility that we could look across the Atlantic for offers for satellite platforms, or do more work in joint ventures with other nations in which our partners outside Europe provide the satellite platform.”

Ranque echoed this view. “We don’t want to jump from the frying pan into the fire in creating a European champion when our customers want to maintain competition and could permit new competitors into Europe,” Ranque said.

Thales’ board of directors on April 4 approved the Alcatel purchase, which also includes Alcatel’s transport-security business as well as its 33-percent stake in Telespazio, the satellite services company.

The combined Alcatel businesses being transferred to Thales reported sales of 2 billion euros ($2.42 billion) in 2005. In exchange for these assets, Alcatel will be given new shares of Thales to increase its stake in Thales to 21.6 percent from the current 9.5 percent. Thales also will pay Alcatel 673 million euros once the transaction is approved by French and European regulators. Thales expects the purchase to be approved well before the end of this year.

Italy’s Finmeccanica company, which holds 33 percent of Alcatel Alenia Space to Alcatel’s 67 percent, has approved the sale in principle, but still must give formal notice. Finmeccanica owns 67 percent of Telespazio.

The terms of the deal value Alcatel’s shares in Alcatel Alenia Space and Telespazio at 696 million euros — a relatively low figure that Alcatel and Thales have agreed to review in 2009. If that independent assessment results in a valuation above 760 million euros, Alcatel and Thales will evenly divide the difference and Thales will compensate Alcatel for its share, Ranque said.

Alcatel Alenia Space officials say their 2005 results do not reflect the company’s future prospects.

“Quite understandably, Alcatel did not want to value the business based on the recent past,” Ranque said. “Just as understandably, Thales did not want to value the business based on a hypothetical future growth. So we calmly agreed to a minimum price and a complement,” if warranted.

Thales expects that by 2008, the relatively minor overlaps between Thales’ current business and the newly acquired Alcatel assets will be rationalized, providing 50 million euros in annual savings.

Ranque said the July 2005 Alcatel-Finmeccanica agreement that created Alcatel Alenia Space and Telespazio had yet to realize the synergies expected, and that these savings would be added to the 50 million euros Thales is forecasting.

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