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Concerns are mounting among Safran employees over a potential merger with Thales. A representative of the employee shareholders, who sits on the Supervisory Board of the listed French defence and aerospace group, told mergermarket that such a merger would raise competition problems and translate into a large number of layoffs.
“We are competitors in a large number of products,” this source said. “We are in head-on competition in a large number of tender offers.” He gave as an example the Mirage F1 programme for Morocco in which Safran and Thales had to team up in the end. Among similar products, he mentioned navigation systems, guidance systems for planes, military telecommunications, or optronics, which are lodged in Safran’s Defence division and which would create redundancies in the event of a merger with Thales.
“There is a lot of overlap between the two companies and that would create serious social problems,” the source emphasized. He said management dodged the question of the future of the Defence and Security division at the latest Supervisory Board meeting of 18 October, but that they readily concede in private there would be competition problems if they merged with Thales.
“A merger with EADS would be more interesting today. It would be more complementary. There would be less value destruction,” the source said. Furthermore, Safran has “more cultural affinities” with EADS than with Thales, the source added.
Employee shareholders hold 20% Safran’s capital.
Press reports indicating a tie-up is being considered and could even be imminent have employees on edge. All five unions represented at the group (CGT-CGC-CFTC-FO) have called employees to stand ready for a series of actions “to defend employment.” A union representative told this news service there has not been such unanimity among unions since 2006, at the time of rumours of an imminent sale of Safran’s mobile phone division. A report in Le Figaro today quoted Denis Ranque, president of Thales, as saying that a merger between Thales and Safran’s Sagem Defense Securite would make sense. However, he didn’t comment on reports of a merger between Thales and Safran.
A person with knowledge of the thinking of Safran said the group’s management “is studying the organisation of the defence division.” This person pointed out that the eventuality of a merger with Thales had to be studied very carefully, given that both groups had clients that were themselves competitors.
A sector banker said, on the contrary, that direct overlaps between both companies are in fact quite limited and that there would be a good complementary dimension to the deal, allowing procurement savings and economies of scale.
This banker also said that Thales and Safran are equal partners and that the distribution of management positions could be done on an even keel. The CEO of Thales could become CEO or chairman of the new group. In a link-up with EADS, Safran would play a much smaller role.
Safran and Thales did not wish to comment on reports of a tie-up.
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