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Political obstacles delay Alcatel deals-newspapers

Written by: Staff

PARIS, Mar 31 (Reuters) Alcatel's bold bid to clinch a telecoms merger with U.S. rival Lucent and simultaniously pull off a satellites deal with defence electronics group Thales has run into some political obstacles, French newspapers said on Friday.

The La Tribune and Les Echos newspapers said President Jacques Chirac was refusing to be hurried into approving a deal between Alcatel and Thales, because he wants European defence group EADS involved in any defence electronics tie-up.

The board of Alcatel, which held inconclusive talks on Thursday over its planned tie-ups but noted talks with smaller rival Lucent Technologies were continuing, is set to meet again over the weekend.

In an effort to scotch daily speculation over the impact of a deal, especially on sensitive military projects on both sides of the Atlantic, Alcatel said on Thursday it would make no further comment until the negotiations with Lucent were wrapped up.

The French company reiterated, however, that the proposed merger -- worth some billion when it was announced last week -- would be carried out at market prices, implying Alcatel would be left with around 62 percent of combined stock.

MERGER OF EQUALS ''Following today's board meeting, Alcatel states -- as we indicated in our joint statement last week, Alcatel and Lucent are engaged in discussions about a potential merger of equals that is intended to be priced at market,'' the company said in the statement read out by a spokesperson in Paris.

''As we have said the companies will have no further comment until either an agreement is reached or the discussions are terminated.'' Alcatel left investors guessing over the fate of a parallel effort to fold its military satellite and other sensitive space activities into Thales in return for an expanded stake in the French defense electronics maker, Europe's largest.

But sources familiar with the talks said the process had been complicated by political and industrial disagreements over whether the space alliance should be widened to include the space activities of Airbus parent EADS, dominated by French and German interests.

Chirac and German Chancellor Angela Merkel have thrown their weight behind an EADS proposal to forge a satellite business comparable to the pan-European Airbus jetmaker, industry sources familiar with the issue said.

But divisions remain within the French government and among the companies involved over whether Alcatel should go at its own pace and leave EADS behind, or whether all parties should regroup their satellite manufacturing assets around Thales at the same time and at comparable valuations, political sources said.

La Tribune newspaper said on Friday: ''Yesterday the Elysee (presidential palace) came out of the woods and expressed its support for EADS joining the (Thales) deal,'' it said.

''Because the state has 31.3 percent in Thales, the Elysee has its word to say and threatens to block an agreement between Alcatel and Thales if it does not simultaneously involve the European arms and aerospace giant EADS,'' it added.

A deal combining Alcatel's satellite activities and those of EADS with Thales had been on the table and close to completion before Alcatel announced the Lucent talks last Friday, one source close to the talks said.

EADS, a longtime suitor of Thales, is likely to resist any attempt by Alcatel to carry out its own deal with Thales first.

But in signs that the pressure is mounting for a deal in time to keep the momentum going in the Lucent negotiations, sources close to the matter said Alcatel and Lucent could strive for a statement combining the various operations on Sunday.

Reuters SS SP1330

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