Dassault Aviation set to buy 20% stake in Thales

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Dassault Aviation is to acquire Alcatel-Lucent's 20.8% stake in Thales in a €1.57 billion ($2.2 billion) deal that will give Dassault and the French government a combined 53% capital stake and 61% of the voting rights in the aerospace, defence and security information systems specialist.

Dassault Aviation will also take over the 5.1% Thales stake held by its parent, Groupe Dassault. The French government holds 27% and retains the same rights as dominant shareholder as it held over Alcatel-Lucent.

Dassault's interest in Thales was revealed in November and came as a surprise, given the company's insistence as recently as late August that it was not interested in increasing its 5% stake.

However, it is thought that deteriorating conditions in the business jet market, where Dassault is a leader in the midsize, super-midsize and large-cabin sector with its Falcon range, led it to seek an opportunity to improve the export prospects for its Rafale fighter.

Thales produces €15 million of equipment per Rafale shipset. It has also begun production of Europe's first active electronically scanned array radar, the AESA RBE-2, which it will deliver to the French air force from 2010, and has expressed confidence that its new radar will kick-start a Rafale exports boom.

Dassault's unmanned air vehicle-capability may also get a boost from control of Thales. Dassault Aviation is leading the European team developing the Neuron unmanned combat air vehicle demonstrator, and Thales is the prime contractor for the UK's Watchkeeper UAV programme.

The deal is subject to regulatory and administrative approvals and is expected to close in spring 2009.