[DEBATE] : An opaque view of ethical and transparent capitalism - Thales

[Miles Teg]

An opaque view of ethical and transparent capitalism

By Paul Betts and Charis Gresser

Published: January 19 2009 18:15 | Last updated: January 19 2009 18:15

President Nicolas Sarkozy gathered the good and the great in Paris a 
fortnight ago to propose new rules to make capitalism more ethical and 
transparent ? a capitalism, in his words, of entrepreneurs and not 
speculators.

Unfortunately, these admirable proposals do not seem to apply to Thales, 
the French defence and civil electronics group, of which the government 
owns 27 per cent. If anything, Mr Sarkozy appears quite happy to allow 
family-controlled Dassault Aviation to take creeping control of Thales 
in order to create a much stronger French defence national champion.

Dassault recently acquired for ?1.6bn ($2.1bn) a 21 per cent stake in 
Thales owned by Alcatel-Lucent. Together with its existing 5 per cent 
stake in the defence and civil electronics group, Dassault now controls 
26 per cent.

Dassault and its veteran chief executive Charles Edelstenne want to run 
the show at Thales, and there is nothing wrong in that. But if it really 
wants control, surely it should pay the full price by launching a 
takeover for the whole company ? something it would have to do if it 
raised its stake to more than 30 per cent.

What is even more questionable is the government?s apparent acquiescence 
in allowing Dassault to pick its own candidate to run Thales. This 
smacks of crony capitalism, and not the new ethical variety Mr Sarkozy 
is now advocating. All the more so given that Dassault appears to be 
pushing for the appointment of François Quentin, the former head of the 
Thales aeronautical division, to replace Denis Ranque as chairman and 
chief executive.

Problems involving Thales? participation in the troubled Airbus A400M 
military transport programme are understood to have prompted the 
company?s decision to replace Mr Quentin with Jean-Georges Malcor, the 
head of Thales? naval division. Thales had campaigned for Mr Malcor?s 
appointment to run the state-owned DCNS naval yards, in which Thales 
owns a 25 per cent stake. But Mr Malcor lost out to the preferred 
government candidate, Patrick Boissier, the former head of the Chantiers 
de l?Atlantique shipyards.

Mr Ranque on Monday gave what was tantamount to a valedictory speech, 
outlining all the achievements of Thales during the 11 years he has led 
the group.

He has survived previous attempts either to force Thales into an 
undesirable merger ? in particular with EADS ? and to unseat him. He 
also initially resisted Dassault?s recent move, arguing that he would 
prefer to see Alcatel-Lucent dispose of its stake on the open market. 
But with the stock market collapsing, it was clearly going to be 
impossible to float the Alcatel stake.

Mr Ranque is unlikely to give up without a fight, however. After all, he 
has to think about not only his shareholders but also his stakeholders ? 
the British government being one of his biggest. Ever since its 
acquisition of Racal of the UK, the French group has had to abide by a 
number of undertakings with the British Ministry of Defence, not least 
on developments in its core shareholding structure.

Although he says Thales and Dassault have long been partners, he also 
insisted on Monday that there was no question of a merger but rather a 
?harmonious cohabitation?. That certainly does not seem to be the case. 
There is little harmony between the two groups? top brass these days, 
and Dassault, so far with the apparent blessing of Mr Sarkozy, appears 
to have every intention of exerting its creeping control. Plus ça change.

The turning of the screw

Financial isolationism doesn?t just sound ugly. It is ugly. The risk is 
this: banks, under pressure to keep the home fires burning, scale back 
credit they had been extending in other markets. That only serves to 
compound the credit squeeze. Round and round, down and down we go.

The UK government is acutely aware of this extra turn of the screw, 
since it bears the scars. The gap left by Icelandic banks and the rest 
apparently means domestic banks have to do far more heavy lifting than 
their puny balance sheets can manage. Some of this narrative is a little 
puzzling. Wasn?t the main problem with the Icelandic banks that too many 
UK depositors, not borrowers, had jumped at the high interest rates on 
offer? But the general point sounds plausible. International 
institutions, such as US money market funds, drove the wholesale 
markets, which big companies as well as small building societies used.

Of course, the political imperative requires UK banks to stress how much 
they can now lend to British consumers and companies, with the help of 
the very latest guarantee scheme. But let?s hope Britain avoids a 
witch-hunt of domestic banks that lend outside the UK. There is plenty 
of scope to make bad loans to UK customers. And judicious international 
expansion can be a boon. Governments should encourage responsible banks, 
lending responsibly, whatever flag they and their customers fly.

world.view at ft.com

 Financial Times Limited 2009

http://www.ft.com/cms/s/0/21ba7e6e-e653-11dd-8e4f-0000779fd2ac.html?nclick_check=1