Julian Moxon/Paris

The French government has been forced to abandon, at least temporarily, its planned privatisation of defence-electronics giant Thomson SA, following the rejection of its plan by an independent privatisation committee.

The move was unexpected, and leaves the Government's attempts to restructure the French defence industry in disarray. In a 16 September decision, the Government had favoured the Lagardère Group to take over Thomson and cede its multi-media subsidiary to South Korean consumer-electronics manufacturer Daewoo Industries. This would have left the Thomson-CSF defence-electronics arm to be incorporated into Lagardère's Matra Defense subsidiary.

Opposition to the deal had been mounting ever since the competing offer from Alcatel was rejected in the September decision. Complaints centred on the need for Fr10.9 billion ($2.2 billion) of state cash for Thomson, of which all but Fr1 billion was destined for the heavily indebted multi-media unit. Unions and senior Government ministers had expressed concern that the money would effectively be used to underwrite Daewoo's entry into an already oversubscribed European consumer-electronics market.

The year-end deadline for approval of the privatisation was already looking shaky after the European Commission (EC) asked for more information, given issues of state aid and competition. In a letter to the French Government on 2 December, European Communityc ompetition commissioner Karel Van Miert had called for a freeze on Thomson Multimedia activities in Europe and the USA pending the final approval of the Daewoo takeover.

Daewoo had promised to create 5,000 jobs in France and to invest Fr5 billion in Thomson Multimedia - but the company apparently failed to convince the privatisation committee of its intentions. The committee found that the South Korean manufacturer "-had no legal ties" binding it to such promises. Daewoo has called the findings "outrageous" and "discriminatory", and demanded a Government explanation.

Lagardere says that it awaits "with interest and confidence" the Government's next move, pointing out that its original offer had been "favourably welcomed".

The Government has promised that the privatisation will go ahead, probably in the spring, and that the whole of Thomson will still be involved, despite continued pressure within France that the defence and multi-media arms should be sold off separately.

The process of selling off Thomson will now be restarted, but Lagardère and Alcatel have left open the question of whether they will renew their offers.

Earlier, the presidents of both Aerospatiale and Dassault, which have been ordered by the Government to merge, told a committee on defence that the Thomson sell-off should ensure that France's defence-electronics and airframe companies were integrated rather than providing only for consolidation of the defence-electronics industry.

Source: Flight International