Alcatel and Thales are pressing ahead with discussions on a possible deal to create a European satellite champion, in spite of news last week that the French telecoms equipment supplier is negotiating a possible takeover of Lucent Technologies to create a $33bn (€27.5bn) group.

Alcatel’s announcement that it was in talks with its US rival was thought to have put paid to discussions with the defence electronics group over a share-for-asset swap. Since last spring the two companies have been discussing a possible plan to inject Alcatel’s satellite interests into Thales in exchange for a 25-30 per cent stake.

Monday people close to both companies said discussions were continuing. The French government, which is examining the implications of any Lucent deal for Alcatel’s 9.5 per cent stake in Thales, is not thought to be hostile to the idea.

The government, which holds 31 per cent of Thales, has sought to bolster the company’s market position ahead of a long-awaited wave of consolidation in the defence sector. In 2004 it briefly considered selling its stake to EADS, the Franco-German aerospace group which is still keen to acquire Thales to boost its undersized defence business.

Alcatel merged its satellite interests into two joint ventures with Italy’s Finmeccanica last year. The larger Franco-Italian joint venture is one of Europe’s leading space groups, with sales of €1.8bn in 2004.

All three companies were part of the consortium which in January signed a contract on the first phase of the European satellite navigation system Galileo.

Alcatel would need Finmeccanica’s approval for any deal involving its satellite joint venture. It is understood the Italian company would not oppose the deal. Pier Francesco Guarguaglini, Finmeccanica head, on Monday told Les Echos, the FT’s sister-paper in France, that “on the face of it, I do not have a problem with an Alcatel-Thales deal.”

The website of the French daily Le Figaro reported on Monday that EADS was interested in injecting its own satellite interests into Thales.

Some observers suggested that this was an attempt to position EADS to acquire parts of Thales in the near future.

EADS directors reiterated over the weekend that they were still interested in acquiring parts of the group but Thales directors are thought to be fiercely opposed to any such deal.

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