Forget mega mergers; chief executive Denis Ranque says the French systems company is content as "multi-domestic" player
When Snecma announced late last month it was in merger talks with fellow French heavyweight Sagem, many felt a chance for a bolder consolidation of the country's aerospace industry had been missed. A union instead between Snecma and Thales - France's largest defence company - would have created an aerospace powerhouse with $20 billion sales, ranked five or six in the world.
It was no secret Thales had been mulling a union with Snecma. Such a move would have ticked all the boxes analysts look for in terms of delivering shareholder value: the companies share customers, and there are synergies but little overlap between product ranges. Snecma supplies hardware, while Thales' specialism is electronics and systems. Snecma's "cash cow" - its 30-year-old CFM International joint venture with General Electric - would have given the merged company a massive revenue stream in the US market, where Thales is weakest.
So why did it not happen? For a start, says Thales chairman and chief executive Denis Ranque, Snecma was not keen. "It was a move that we have considered among many others. There had been a rapprochement between the two groups, but we did not make it formal when we learned that Snecma management were not in favour," he says.
Speaking last week to Flight International in London, where he gave a lecture to the Air League, Ranque insists Thales is happy being single. Without ruling out future mergers with EADS or BAE Systems - the other European giants seen as likely suitors - he insists Thales will not give up its independence just to create scale. "I don't believe Thales has any need to be merged into a wider company, so there is no benefit in size in itself. If we were weak in our business, we might have a need to get bigger, but in our field we are European leader," he says. "Any such move has to be looked at through the filter of shareholder value and synergies: size itself does not matter."
Thales is, of course, a sizeable entity already. Ranked tenth in the Flight International Top 100, with aerospace and defence revenues of $9.5 billion out of a total $12 billion, it has ridden the rollercoaster of French industrial policy for two decades. Nationalised in 1982 and privatised 16 years later (the state has kept a 30% share), a string of acquisitions in France and elsewhere - including the UK's Racal Electronics in 2000 - saw the then Thomson-CSF emerge as an international player with industrial operations in 30 countries and more than half its 65,000 workforce outside France. It was renamed Thales in December 2000 to create a global brand.
However, Ranque prefers to describe Thales as a "multi-domestic" company, with each of its major businesses firmly rooted in its home market. "In the UK we are a UK company, in Korea we are Korean and Australian in Australia," he says. Thales' defence business - 64% of its revenues - means it needs robust internal walls between national operations. "Our goal has never been to create a fully integrated company in terms of customer relationship and security. We need to have our differences," says Ranque, who followed the traditional French industrialist's path from the elite Ecole Polytechnique through a spell in the civil service before joining Thomson in 1983.
The strategy has stood Thales in good stead in the defence market. In the UK, Thales is preferred bidder to provide the Watchkeeper intelligence, surveillance, target acquisition and reconnaissance system; with BAE Systems, it will provide two carriers under the CVF Future Aircraft Carrier programme; and it is part of the Airtanker team selected for the Future Strategic Tanker Aircraft programme. Its Australian subsidiary ADI is one of the country's big two defence contractors while Thales is one of a few continental defence companies to have breached the fortress of the US Department of Defense through its ThalesRaytheonSystems joint venture, which produces battlefield radars and air defence command and control systems.
Thales - which traces its roots to 19th century US entrepreneur Elihu Thomson - has a $1 billion business in North America, employing 2,000 people. Ranque insists the main barrier to Thales acquiring a bigger transatlantic footprint is the USA's restrictive technology transfer rules - not the fact that it is French-owned. "We have planted the seeds for the long term," he says. "But technology transfer is the big obstacle to creating synergies. Acquisitions make sense when we can transfer technology from east to west as we have done with [US businesses] Thales Communications and ThalesRaytheonSystems."
Even though there is no political meddling in the running of Thales, the state's 30% stake in the company remains a hindrance. Because France has been moving to a UK-style "competitive autonomy" procurement policy - albeit with contests limited to European industry - Thales enjoys no easy wins in its home market. On the other hand, the public-ownership image is "sometimes a disadvantage in the rest of the world", admits Ranque. He is confident the government will shortly offload its stake. "The policy has been to move out of the sector progressively," he says. "But when and how they do it is a matter for them. They act in the interests of the French taxpayer so will want to sell at the best moment. And surprising the market is the best way to get the best price."
MURDO MORRISON / LONDON
Source: Flight International