French groups Sagem and Snecma to merge

29th October 2004, Comments 0 comments

PARIS, Oct 29 (AFP) - Two major French industrial groups, telecommunications equipment maker Sagem and aerospace engine manufacturer Snecma, announced merger plans Friday that would lead to privatisation of the latter.

PARIS, Oct 29 (AFP) - Two major French industrial groups, telecommunications equipment maker Sagem and aerospace engine manufacturer Snecma, announced merger plans Friday that would lead to privatisation of the latter.  

Sagem will offer three of its own shares for every 13 shares of Snecma, the companies said in a joint statement.  

The offer also includes a cash alternative of EUR 20 per Snecma share, which will be capped at EUR 1.25 billion (USD 1.59 billion), they said.  

Once the deal is finalised, the French state's 66.22-percent stake in Snecma will be reduced to around 33 percent.  

"The merger should create a major industrial and technology group that is competitive on a global scale and is well positioned in growth sectors," the companies said.  

Trading in Sagem and Snecma shares was suspended until 1100 GMT after the announcement, which left some analysts questioning the move.  

"The two groups will have to explain their interest in such an alliance, which won't be easy since they differ in a number of ways," said brokers Aurel Leven in a note to clients.  

"The arguments put forward for the moment to justify the tie-up don't seem to us to be very pertinent."  

But the deal was hailed by the French government, with Finance Minister Nicolas Sarkozy and Defence Minister Michelle Alliot-Marie saying in a joint statement that it would create "a major player in European industry."  

"It strengthens European industrial capacities in strategic sectors such as defense," they argued, adding that the combination of their "expertise, knowledge, research and innovation capacities ... and international networks will allow them to offer better services to their clients."  

Snecma chairman Jean-Paul Bechat, tipped as board president of the new group, said it should be up and running by May.  

"We certainly have four to six months of work, we have to do some consulting," he told BFM radio.  

The deal had to be done by diluting the state's holding in Snecma, Bechat added.   "Any other solution would have amounted to a nationalisation of Sagem, and that was naturally not the aim of any of the parties," he said.  

The two groups maintained that the merger would have no negative effect on employment. The combined entity would employ 55,000 people.  

Snecma and Sagem also estimated they would realize cost benefits worth between EUR160 and EUR 190 million by the third year of joint operations.   Snecma shares closed at EUR 16.10 on Thursday and those of Sagem at 78.70.  

The companies have market capitalisation of around EUR 4.3 billion and EUR 2.9 billion, respectively.   "It's a little like the privatisation of Air France-KLM," commented Bechat in reference to the state's majority stake in Air France that was diluted as the result of a merger.  

But Aurel Leven said: "We wonder why Snecma refused a tie-up with (defence equipment group) Thales? If you had to choose, a merger with the latter would make much more sense in our opinion.  

"It would have resulted in the creation of a major aeronautical actor."  

Snecma is one of the world's four biggest jet engine makers, behind General Electric, Pratt and Whitney and Rolls-Royce.  

Since 1971 it has been a full partner with GE in CFM International, which powers Airbus and Boeing passenger jets.  

Snecma also makes the engines for European Ariane rockets and France's strategic nuclear missiles, as well as landing gear, cabling, and thrust reversers for military and civilian aircraft.

© AFP

Subject: French News

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