Beyond Armaris: Thales “Buys” Minority Stake in DCN
In December 2005, the French state and Thales issued a joint declaration of intent that Thales and DCN would tighten their ties via Thales’ purchase of a 25% interest in DCN. The two companies have previously formed Armaris in 2002 to work on joint projects like the Horizon Class air defense frigates and FREMM multi-role frigates for the French and Italian navies, and are also joint participants in the MOPA2 joint company set up to build France’s second aircraft carrier.
The deal was expected to be finalized by the summer of 2006, but was not completed until late March 2007. Early reports said Thales would transfer the non-equipment businesses of Thales Naval France (excluding radars), the activities of the partners’ 50/50 joint venture Armaris and its subsidiaries, and Thales 35% interest in the joint MOPA2 firm created to build France’s second aircraft carrier, to DCN. The scope of the agreement will also throw in Thales’ 24% share in Eurotorp, the European lightweight torpedo consortium. An additional, undisclosed cash contribution is also involved.
At the conclusion of this deal Thales will become DCN’s “industry shareholder” with a 25% minority stake and some Board of Directors representation, while the French State will retain an overwhelming 75% interest. After 2 years, under the terms of a new shareholders’ agreement, Thales will have an option to increase its interest to 35% by contributing additional industrial assets to the company (which it did).
The Thales Group’s naval businesses generated 2.2 billion euros in 2004, with more than 6,100 employees working at facilities in 10 countries. DCN will generate revenues of approximately 3 billion euros, with an order book in excess of 8 billion euros and some 13,300 employees.
The joint release for the DCN acquisition included a sizable helping of pan-European rhetoric. Observers are urged to pay attention to the deal’s structure, percentages, and stakeholders when evaluating these claims.
One should also note that Thales took pains to publicly note that this agreement does not encompass their worldwide naval electronics equipment business or naval systems activities beyond France, which includes those activities potentially involved in Thales’ proposal for Atlas Elektronik. As Thales put it:
“Prime contractorship and naval systems activities based outside of France, in particular in the Netherlands, Germany and the United Kingdom,” are not involved. Thales also took pains to confirm its commitment to serve the independent European naval shipyards with which it has developed a long lasting and successful cooperation.
Within the framework of the on-going Atlas Elektronik sale, Thales states that they remain “ready and able to provide the relevant German stakeholders with all appropriate industrial and security guarantees.”
These guarantees are necessary because Thales is not the only bidder, and regulations remain a hurdle to the sale. According to Jane’s, other bidders for BAE Systems’ Bremen-based subsidiary include Sweden’s Saab AB, L-3 Communications in the USA, German space and satellite systems group OHB, Thales, Italy’s Finmeccanica, Franco-German firm EADS and Germany’s ThyssenKrupp. Nevertheless, legislation passed by the Bundesrat in August 2004 gives the German federal government a veto over foreign acquisitions of stakes greater than 25% in its domestic defense operations. There are rumors that Thales is looking to find a German partner for a joint bid that would allay German concerns – possibly ThyssenKrupp.
- See the DCN presentation that outlines DCN’s annexation of Thales Naval France et. al. (PPT, 3.5MB)