Thomson-CSF sale scrapped

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The French government last night scrapped the privatisation of the defence electronics group Thomson-CSF, dealing a blow to the ambitions of Britain's GEC and British Aerospace to spearhead the consolidation of Europe's defence industry.

Both UK companies had planned to take part in the privatisation of Thomson by forging alliances with Lagardere and Alcatel Alsthom, the two French defence groups bidding for the company.

The decision of the Socialist Jospin government to abandon the sale in favour a French solution based on public ownership of Thomson would appear to put paid to those ambitions.

Although a statement from Mr Jospin's office said the solution it was now seeking would take into account alliances being formed to reinforce the European defence industry, it was not apparent that there would be any involvement of non-French interests.

Meanwhile, GEC was rewarded with a small consolation after the Government released the group from undertakings preventing it from buying Siemens Defence.

Margaret Beckett, President of the Board of Trade, said she had taken the decision on the advice of the Director-General of Fair Trading in light of the changing circumstances in the defence industry.

Analysts interpreted the move as not only freeing GEC to bid for Siemens Defence, which consists mainly of the former Plessey radar and military communications businesses, but also as a sign that the Government might be more relaxed generally about defence mergers involving UK firms.

On Thursday GEC announced a deal to merge part of its Marconi defence electronics division with those of Finmeccanica, the Italian state-controlled holding company. The deal came just two days after GEC's new managing director, George Simpson, unveiled a strategic overhaul designed to catapult Marconi up the ranks of world defence contractors through a combination of mergers and takeovers.

GEC is one of four bidders interested in buying Siemens Defence. The other three are British Aerospace, Thomson-CSF of France and Alcatel Alsthom, which is also French.

Siemens Defence was created out of the break-up bid for Plessey by GEC and Siemens in 1989. At the time the Monopolies and Mergers Commission voiced concerns about the impact of the deal on competition for defence radar and military communications orders and recommended GEC should not be allowed a stake in or any control over the Plessey divisions.

Under the deal with Finmeccanica, Marconi and Alenia will create three joint-venture companies with sales of pounds 2bn covering missiles, naval systems, radar, avionics, guns and armoured vehicles.