Dassault in U-turn, eyes Thales stake

PARIS (Reuters) - French warplane maker Dassault Aviation said late on Monday it was interested in buying a stake in radar maker Thales in a U-turn that could signal a French defense industry shake-up.

Dassault, the family-owned maker of Rafale fighters and Falcon business jets, confirmed its interest in a 20.8 percent stake held by Thales's main private shareholder Alcatel-Lucent after a report of an imminent deal pushed up defense stocks.

"Dassault Aviation intends to study the opportunity of buying the block of shares in Thales held by Alcatel-Lucent if it should become available for sale," it said in a statement.

"Under that hypothesis, Dassault Aviation could also consider buying the financial stake in Thales held by GIMD," it said, referring to family holding Marcel Dassault Industries.

Alcatel-Lucent and Thales declined to comment.

Daily La Tribune reported earlier Alcatel-Lucent (ALUA.PA) was close to a deal with Dassault Aviation (AVMD.PA). Shares in Dassault, Alcatel-Lucent and other defense stocks rose sharply, at times outperforming a broad rebound in global stocks.

Alcatel-Lucent ended up 14 percent at 1.941 euros.

Speculation that Alcatel-Lucent would refocus on its loss-making telecoms equipment activities has hung over Thales for months, with both Dassault and Alcatel's space industry rival, EADS (EAD.PA), seen as the leading contenders.

EADS tried and failed to buy Thales in 2004. Its chief executive said this year he was not interested in a new bid.

Thales (TCFP.PA) Chairman and Chief Executive Denis Ranque has fought for years to keep the maker of high-tech military and civil aerospace equipment away from predators. But he has faced shifting loyalties from industrial shareholders.

His position could be weakened if Thales does eventually change hands, defense analysts say.

The Dassault industrial family owns 5 percent of Thales, having participated in the privatization of Europe's leading defense electronics firm alongside Alcatel in 1998.

Unhappy at Thales's plans to expand into the naval industry and frustrated at a lack of voting influence, Dassault put its stake up for sale in June 2005 and maximized its freedom to act by quitting a shareholder pact with Alcatel and the state.

Asked at an August 28 news conference if he had changed his mind and would consider buying Alcatel out of Thales, Dassault Aviation Chief Executive Charles Edelstenne, said, "No."

He also reaffirmed that Dassault wanted to sell its own 5 percent stake in Thales, but said "now is not the right time."

Shares in Thales have fallen 14 percent since August 28 but have performed better than the French market, down 21 percent.

FRENCH CHAMPION

Thales supplies the radar on France's Rafale warplane, which is built by Dassault and has not yet found a foreign buyer.

The lack of exports and the absence of a future replacement program has left Dassault's drawing boards looking bare.

"Dassault has one of the best design shops in Europe. This may be about preserving a French champion," an industry source said. Thales and Dassault have already launched co-operation on military drones in competition with a group led by EADS.

Thales is also a supplier to EADS but the two compete in defense electronics, an area in which EADS is relatively weak.

Paris brokers Oddo Securities said a deal could prompt EADS to accelerate its expansion in this sector through acquisition.

Like Dassault, Alcatel has wavered over its Thales stake.

In the years after privatization, Alcatel's stake rose to 25 percent then dropped back to 9.5 percent. It leaped back to 20.8 percent last year as part of a deal with Thales on satellites.

The arrival of former EADS co-CEO Philippe Camus as Alcatel chairman earlier this month rekindled speculation of a sale.

While Alcatel-Lucent is both losing money and cutting jobs and its Thales stake is not considered strategic, analysts say the group is not under strong immediate pressure to raise cash.

Its net debt stood at 415 million euros at half-year.

A sale of 20.8 percent of Thales would be worth around 1.3 billion euros at Monday's closing Thales share price of 32.99 euros, up 5.9 percent from the previous session. That is 25 percent below the price a buyer would have paid a year ago.

(Additional reporting by Dominique Vidalon, Matt Gil; Editing by Greg Mahlich, Leslie Gevirtz)