Oct 28, 2011 By Tarek Amara and Andrew Hammond/Reuters - AviationWeek.com
PARIS - Thales and Safran have almost reached a long-awaited deal to pool some of their defense assets by setting up two joint ventures between the French companies, a source close to the matter said on Friday.
The government-backed deal would see the creation of one venture specialized in optronics led by Thales and a second, focused on navigation avionics, led by Safran, the source said.
“Thales and Safran are not far from a deal in principle but it is not the final agreement,” the source said, asking not to be named.
Les Echos reported on Friday that an agreement in principle could be reached in the next few days.
Safran and Thales declined to comment. Safran shares rose 1.5 percent, outperforming France’s blue-chip index, while Thales shares were flat in early trading.
The privatized companies, rivals in some projects but partners in others, have been under mounting French government pressure to pool defense assets worth an estimated half-billion dollars to avoid taxpayers paying for the same research twice.
The deal is expected to group the two companies’ electrical power generation systems and navigation activities—including automated flight functions—in Safran.
The optronics businesses, which combine electronics and optics, would be placed together under Thales, which is Europe’s largest defense electronics firm.
Earlier attempts to reach a deal failed last year with neither side willing to compromise. French defense companies are acting cautiously as they brace for further consolidation.
Talks resumed in May but with several companies competing for a slice of dwindling spending in France’s fragmented defense sector, there have been several false starts.
Dassault Aviation, a major shareholder in Thales, said in May a deal could be weeks away, but the chief executive of Thales warned negotiations had a “way to go”.
A French defense source said earlier this month that the rationale for the move was now more widely accepted, leaving valuation as the main stumbling block.
The French government owns 30.2 percent of Safran, which makes aero engines and military products including infra-red army goggles, and 27 percent of Thales.
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