Thales‘plan to acquire Alcatel‘s 67 percent stake in satellite manufacturer Alcatel Alenia Space undoubtedly is one of the most significant deals of the year in the European satellite arena. One analyst however believes that Alcatel, which will receive more than $2.1 billion in cash and Thales stock, is the winner in this particular deal.

Karim Nour, a satellite analyst at Frost & Sullivan told Satellite News, "I think it makes a tremendous amount of sense for Alcatel. This deal was a real coup for Alcatel, and it was an excellent move on their part. Thales is going to find that satellite manufacturing is a challenging business and will continue to be one. I think Serge Tchuruk (Alcatel’s CEO) pulled a pretty brilliant move, actually."

Satellite manufacturing continues to be a tough business with a number of players competing for not huge amounts of new satellite orders, Nour said. The success of the deal from Thales’ point of view could depend on the number of contracts they are able to derive from the French government, which is the major shareholder in Thales.

"I am sure Thales are very excited about getting into a business that could bring them into some high profile contracts," Nour said. "I am sure the French Ministry of Defence provided some encouragement in terms of possible future business with communications components and manufacturing. But anyone who believes that satellite manufacturing is a Greenfield market has not been in the industry very long, and Thales has not been in the industry very long."

Thales Perspective

As part of the deal, Thales will pay Alcatel 673 million euros ($815.6 million) upon closing of the transaction. Alcatel would strengthen its position as the reference shareholder of Thales, with a 21.6 percent stake. The French government will remain the major shareholder of Thales with a 27.1 percent stake. As part of the deal, Thales, a global electronics company serving aerospace, defence, and security & services markets around the globe, also acquired Alcatel’s railway signalling business and its integration and services activities for mission-critical systems in the deal.

Thales CEO Denis Ranque believes the deal makes a lot of sense for the company. He outlined the reasons why he thought Alcatel’s space assets were such a good fit for the company last week, in particular believing the acquisition gave it a "missing link" in its business.

"We will reinforce our position with largescale defense systems," he said. "Satellites were the missing link in our expertise. Computer surveillance and reconnaissance — the whole battle field loop — we can see, transmit, decide and act. This loop is really organized around satellites. They play an important role, whether it is to observe or transmit. Therefore, this missing link puts Thales in the position of the undisputed European leader, with all the assets in hand to organize these largescale defense systems."

In terms of high-tech civil systems, Ranque added, "There is a clear analogy between a civil ATM (air traffic management) and a military one. We know that, in the future, the ATM will be based on satellites, whether to identify the positioning of aircraft or for the aircraft to transmit their positions to the traffic controllers on the ground, or viceversa, with every possible redundancy, of course. The same goes for Earth observation and navigation applications."

The third aspect that Ranque highlighted was the fact that the deal, while may be looking like a particularly French deal on paper, also gives Thales a better international presence. "Thales was also already an international player and has also become even more so now with this contribution," he said. "This gives us a total headcount of 11,000 people, 10,000 of whom are in Europe. In France, we have 4,000, in Italy 2,500, in Germany 1,500 and to a lesser extent Belgium and Spain with between 500 and 1,000. Then there is Canada, with almost 1,000 people. Therefore the Thales international dimension is reinforced. In particular, I would like to stress the link with Italy. This will be structural because together with Finmeccanica, we have a stake in these two space businesses."

The deal also calls into question whether there will be consolidation in the European satellite manufacturing arena. Andrea Maleter, technical director of Futron Corp. believes such consolidation could be less likely as a result of this deal.

"There has been a lot of speculation throughout the last two to three years about the potential of an Alcatel/EADS merger," Maleter also expressed her surprise that Alcatel sold its space assets. "It is interesting that Alcatel would choose to divest its satellite manufacturing which has synergies with its telecoms side," she said. "Every satellite system needs Earth stations, control facilities, and terrestrial networks, and Alcatel provided all of these, enabling them to bundle all the elements into integrated sales."

Nour believes the deal represents a win for Alcatel and a loss for EADS, who was also interested in doing a deal regarding its satellite operations to gain a stake in Thales. "I think EADS was thinking the same thing that Alcatel did. They would have loved to gain a stake in Thales."

Maleter takes a slightly different view. "I don’t think EADS is particularly a loser here," she said. "There are still discussions that could lead to further integration."

Contact, Karim Nour, Frost & Sullivan, e-mail, [email protected] Andrea Maleter, Futron Corp, e- mail, [email protected] Natasha Harvey, Thales, e-mail, [email protected]