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Thomson swallows Racal
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January 13, 2000: 10:05 a.m. ET
French group pays $2.2B for U.K. rival as defense sector consolidates
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LONDON (CNNfn) - French defense giant Thomson-CSF jumped into the European takeover fray Thursday, agreeing to buy Britain's Racal Electronics for 1.32 billion pounds ($2.17 billion) to boost its presence in Europe's fast-changing market for defense and electronics equipment.
Tie-ups among European aerospace and defense companies are accelerating as suppliers seek to offer more complete ranges of the most advanced products.
Thomson said the deal significantly bolsters its presence in Britain, already its second-largest market after France. The enlarged company expects to have annual sales of about 2 billion pounds ($3.3 billion) in the U.K.
"The acquisition of Racal represents a major step in our development as a global electronics and systems group," Denis Ranque, Thomson's chairman and chief executive, said in a statement. "It will significantly strengthen our position in defense electronics and systems and accelerates our growth in commercial high-technology activities."
Ranque told Reuters Thursday he was confident the acquisition would receive regulatory approval. He added that he expected only "very modest" job losses as a result of the combination.
Thomson said it will pay 450 pence in cash for each Racal share. Racal shareholders will continue to be entitled to receive a special interim dividend of 167 pence per share and an interim dividend of 2.1 pence per share, both payable January 28 to shareholders of record as of January 14, 2000.
Taking account of the special and regular dividends, the offer values Racal shares at 619 pence each, a 37.6 percent premium to the closing share price of 450 pence on Nov. 1, 1999 - the day before the start of discussions between Thomson and Racal about an offer.
Racal (RCAL) fell to 429 pence in London Thursday, while Thomson-CSF (PHO) climbed 3 percent to 35.95 euros in Paris.
European defense integration began in earnest last January, when British Aerospace agreed to buy the defense-equipment arm of the U.K.'s General Electric Co. for $13 billion, forming a defense giant called BAE Systems. General Electric Co., now called Marconi, bears no relation to the U.S.-based GE.
By the time U.S. regulators had given a green light to the BAE purchase in November, Germany's DaimlerChrysler Aerospace and France's Aerospatiale had unveiled plans of their own to unite in a new company, provisionally titled the European Aeronautic and Defense Space Co., or EADS. That merger still awaits final approval.
The two deals created potential rivals as market leaders in the European aerospace sector. They also dealt a blow to some European politicians initial hopes that mergers might lead to the creation of a pan-European defense monolith able to go head-to-head with U.S. heavyweights such as Boeing and Lockheed.
That vision has recently foundered on political and commercial disagreements that have also slowed efforts to reform Airbus Industrie, a commercial airplane alliance in which DaimlerChrysler Aerospace, or Dasa, and Aerospatiale-Matra each control 38 percent. BAE has a 20 percent interest in Airbus, while Spain's Casa, in which Dasa owns a minority stake, holds 4 percent.
Thomson, a global defense electronics leader whose products range from radar for combat aircraft to air traffic control systems, employs 50,000 people, including 6,000 in the U.K. About a third of the group's workforce is based outside France. The company maintains industrial facilities and sales offices in more than 40 countries. Thomson had revenues of 40.5 billion French francs ($6.3 billion) in 1998, the most recent year for which full data is available.
The deal is expected to generate annual pretax savings of at least 50 million euros ($51.5 million) by the end of the second full year after its completion. The companies estimate restructuring costs will total 40 million euros in the first year. 
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