PARIS - Thales is keen to raise its stake in naval systems company DCNS to 35 percent from 25 percent, as systems integration plays an increasingly important part in the design and building of modern warships, said Marc Darmon, head of Thales' naval division.
"Lifting the stake in DCNS would boost synergies for DCNS and Thales, as the main task facing industry is the managing of integration risk, which comes from the complexity of systems," Darmon said.
Thales makes radars, optronics for infrared search and track and electronic warfare, communications and sonar gear, and integrates systems. The Tacticos combat management system, which fuses sensors and weapons, is one of its key products.
Darmon maintains the strategy set by predecessor Jean-George Malcor, who also favored increasing Thales' holding in DCNS. Darmon took the top job at the naval division in January in a reshuffle that saw Malcor put in charge of aerospace activities.
That continuity was significant because it shows the arrival of Dassault Aviation in Thales' shareholding as the main industrial partner has not changed strategy, a naval executive said.
The 2007 purchase by Thales of its 25 percent in DCNS took a couple of years to agree, mainly because the Dassault family holding company opposed the acquisition, as naval shipbuilding left the owners of aircraft maker Dassault Aviation cold.
An analyst at a French brokerage said the option granted to Thales to raise its stake in DCNS was a "good price."
Under the March 2007 agreement, Thales has large operational powers, such as key appointments and strategic decisions, attached to its 25 percent holding. If Thales waived its option to take up the extra 10 percent, the company would lose those powers and see them reduced to those normally attached to a 25 percent minority stake.
Thales communicated the headline cash amount at the time of the agreement, but the option price and step-up amounts went largely unreported.
The terms of Thales' acquisition of the 25 percent stake in DCNS were announced in the March 27 edition of the Journal Officiel, which gave the "base price" of the holding at 569.1 million euros ($845 million).
The terms, as set out in the Journal Officiel, require Thales to pay step-up payments based on DCNS' operating profit performance, and orders for export and the French Navy.
The first step-up payment Thales would have to pay would be 25 percent of an amount equal to 12.5 times the difference between DCNS' average annual consolidated operational profit and 211.7 million euros, the reference amount retained by the state and Thales. The performance period runs between 2007 and 2011.
To calculate the step-up payment, the average annual operating profit may be lowered to reflect contracts linked to French Navy and export orders.
The second type of step-up payment obliges Thales to pay 11.25 million euros if a DCNS export contract comes into effect before Dec. 31, 2013.
The third step-up payment is tied to contracts signed for the French Navy. The amount, 24.88 million euros, would reflect DCNS' share of contracts signed before Dec. 31, 2012.
The option came into effect from March 30 and runs to March 29, 2012.
As part of the acquisition, Thales transferred Thales Naval France division, its 50 percent share in the Armaris joint venture and its 35 percent in the MOPA2 French carrier joint venture. Armaris holds the Indian export contract for six Scorpene attack submarines and the FREMM multimission frigates. The value of those assets totaled about 514 million euros.
To make up the full 569 million euro base price, Thales then paid 55 million euros cash.
On prospects for an alliance between civil shipbuilder STX France and DCNS, Darmon said there was no need for "capitalistic ties." The main business of DCNS and Thales is integration of combat systems on warships, he said. STX's shipbuilding capacity could be brought in on a commercial basis, such as on building the third Mistral class projection and command ship.
For the time being, the view seems to hold that closer links between DCNS and Thales will boost the systems engineering skills needed to master the technological challenge of building warships.
Thales Executive Chairman Luc Vigneron is expected to hold a board meeting Dec. 10 and brief executives the next day on the company's strategy. Around the same time in December, DCNS Chairman Patrick Boissier is expected to unveil the company's strategic plan.
Combat systems make up between 25 percent and 40 percent of a warship, ranging from light corvettes and patrol vessels to heavily armed frigates, Darmon said. ■
E-mail: ptran@defensenews.com.
The Army's Future Combat Systems (FCS) program is ready to test a few components that soldiers may have in their hands by 2010.
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