- The Washington Times - Friday, November 12, 2004

PARIS (AP) — The French government wants to merge Airbus parent EADS with defense company Thales to create a new European giant to rival Boeing, a leading financial daily reported yesterday.

Finance Minister Nicolas Sarkozy would not comment on the report in Les Echos that the government is pushing for a takeover of Thales SA by European Aeronautic Defense and Space Co., his spokesman said.

EADS, which is 15 percent owned by the French state and relies heavily on government orders for its military businesses, refused to say whether the companies had discussed such a deal. Media officials from Thales did not return calls.

But a source at one of the companies, who spoke on the condition of anonymity, said a merger “has never been on the agenda.” If the French government wants Thales and EADS to link up, the source said, “it has to ask the other shareholders.”

The French state owns one-third of Paris-based Thales, which provides electronics and weapons systems for planes, ships and ground-based forces.

Telecommunications equipment maker Alcatel SA and aerospace group Dassault SA together hold a further 15 percent.

French defense and media group Lagardere SCA owns 15 percent of EADS — the same share as the French government — while Germany’s DaimlerChrysler AG is the biggest shareholder with about 30 percent.

EADS’ activities span passenger and business jets, fighters, helicopters, satellites and missiles.

“We don’t comment on speculation,” Thomas Froehlich, a DaimlerChrysler spokesman, said of the Les Echos report.

Investors took it seriously when trading opened in Europe, sending Thales shares soaring as much as 7 percent while EADS stock dipped 4.6 percent.

By the end of trading, however, EADS shares had recovered most of their losses and closed 1.2 percent lower at $31.76. Thales shares closed up 5.2 percent at $42.96.

European defense consolidation has been the subject of feverish speculation after French electronic equipment maker Sagem SA and aircraft engine maker Snecma announced a surprise $5.8 billion merger deal last month.

The deal created a new defense conglomerate that is expected to have annual sales of about $13 billion.

The French government also indicated last month that it would back a merger of Thales and state-owned warship builder DCN.

Even without DCN, a linking of EADS and Thales would create a defense and aerospace giant with annual sales of $52 billion — higher than those of U.S. rival Boeing Co. in 2003.

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