TI sale puts French defence commitment in doubt

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The Independent Online
TI Group yesterday sold its 50 per cent share of Messier-Dowty, its landing-gear business, to its joint-venture partner Snecma after the French state-owned aerospace group ruled out selling its stake. As Peter Thal Larsen reports, the news casts doubt on the French government's commitment to European defence consolidation just a day after France, Britain and Germany called for the creation of a single European defence group.

TI had originally hoped to take full control of Messier-Dowty, which supplies landing gear for commercial aircraft and military jets such as the Eurofighter. But following the change of government in Paris, those hopes were dashed.

"We detected a strong shift of position after the recent French elections," said the Finance director Martin Angle. "There was no option on the table for us to buy."

As a result, TI decided to sell its stake for pounds 207.7m rather than continue with the joint venture, which was performing poorly despite buoyant demand in the aerospace market. "Messier-Dowty was not capable of producing the returns required by a UK public company," Mr Angle said. "It had to be owned by one party or the other for returns to be maximised."

Snecma's refusal to sell appears to contradict the French government's support for cross-border consolidation in the defence industry. Just yesterday President Jacques Chirac and Prime Minister Lionel Jospin put their names to a joint statement with Prime Minister Tony Blair and Chancellor Helmut Kohl of Germany calling on the three countries' aerospace and defence industries to "restructure to compete in world markets". The statement asked the industry to come up with an plan and timetable by next March.

Industry experts, who have long been suspicious of the French government's commitment to defence consolidation, were not surprised. "The French government's actions to date suggest they're in the business of building national champions," said one. "They want to get their own house in order before coming to the negotiating table."

TI shares fell 17.5p to 513p as analysts reduced their profit forecasts for the group. "It's a bit disappointing that Messier wasn't going to make the profits we though it was," said one. "The sale will also reduced TI's profits by about 3 per cent until they reinvest the proceeds."

But other observers broadly welcomed the move. "Messier's performance has been very pedestrian," said one. "It was a question of double or quits."

Mr Angle pointed out that, taking into account disposals and the value of the remaining businesses, TI had enjoyed a healthy return on its investment. The group acquired Dowty for pounds 650m in 1992 after a bitterly fought takeover battle. "We have created some pounds 400m-pounds 450m of value since then," he said. Following the Messier-Dowty sale, TI still controls Dowty's original polymer division as well as its wholly-owned Dowty Aerospace business, which makes engine rings as well as propellers for turboprop aircraft and accounts for 20 per cent of TI's sales.

Indeed, TI plans use proceeds of the Messier sale to expand its remaining businesses, including aerospace. Mr Angle said the group was looking at bolt-on acquisitions for every one of its businesses. "We have discussions going on in every area," he said. The group recently announced that it had taken a 30 per cent stake in Lips, a Dutch manufacturer of marine propulsion systems for pounds 7m, with an option to buy the remaining 70 per cent until June 1998. Mr Angle said he would be "very disappointed" if the company had not spent the money raised by the Messier-Dowty disposal by the end of 1998.

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