Thales shuns big mergers after U.S. aero firms try to team up
The logo of French defence and electronics group Thales - REUTERS
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France’s Thales (TCFP.PA) ruled out its participation in a “Big Bang” merger as the aerospace industry digested news of inconclusive talks between two of its largest suppliers, United Technologies (UTX.N) and Honeywell (HON.N).

The existence of recent talks between the U.S. groups to create a components and engines giant with $90 billion of sales became public overnight, but United Technologies said a deal would “face insurmountable regulatory obstacles.”

The shape of the potential tie-up echoed, on a larger scale, abortive talks between Thales and French aero engines maker Safran (SAF.PA) in 2007. They broadly compete with Honeywell and United Technologies respectively.

But Thales Chief Executive Patrice Caine told reporters he had no intention of revisiting the discussions and highlighted the difficulties of carrying out “Big Bang” transactions.

He also ruled out bidding for Safran’s Morpho Detection airport security business, which is reportedly up for sale.

Thales would focus on add-on acquisitions without major execution risk and with a high chance of boosting profitability.

Thales makes civil and military aircraft avionics, satellites, rail signalling systems and radar.

Shares in Europe’s largest defence electronics group rose more than 6 percent as strong 2015 defence earnings helped lift operating profit 23 percent to 1.22 billion euros ($1.3 billion), and advance payments from orders more than doubled its cashflow.

Thales raised its dividend 21 percent to 1.36 euros after posting higher-than-expected core profit and record orders for 2015, kicking into a higher gear after years of lacklustre growth.

The company’s order intake jumped 31 percent to 18.88 billion euros, lifted by radar contracts for recent French Rafale fighter sales to Egypt and Qatar, as well as a major London Underground signalling contract.

Caine dismissed talk of a downturn in civil aerospace markets, saying airline traffic continued to support rising aircraft production.

He said a UK vote to leave the European Union in a June referendum would be neutral for the company’s UK defence business but would “raise concerns about the dynamism of Europe”.

For 2016, Thales predicted operating income of between 1.3 billion euros and 1.33 billion, on the high side of analyst forecasts, and mid-single digit organic sales growth. It also said it planned to erase losses at its transport division.

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