Lucent waits in the wings, while Thales talks continue

Alcatel's plans to clinch its $36bn merger with rival Lucent Technologies, and pull off a deal with defence electronics group Thales, has been halted by French president Jacques Chirac.

According to French newspapers La Tribune and Les Echos, Chirac refuses to be hurried on giving his approval to proposed deal between Thales and Alcatel, which could be worth $35bn.

The crux of the delay is that Chirac wants European defence group EADS to be involved in any defence electronics tie-up.

Alcatel wants to fold its satellite activities into Thales in exchange for a larger stake in the privatised defence electronics firm.

But EADS has been a long-time suitor of Thales, so is likely to resist any attempt by Alcatel to carry out its own deal with Thales first.

Meanwhile the Lucent deal has been finalised and is ready to be announced in days. Serge Tchuruk, executive chairman at Alcatel, will become non-executive chairman of the new group with "extended powers".

Lucent's Patricia Russo will become managing director at Alcatel-Lucent with Alcatel's Mike Quigley as number two, sources close to the talks said.

Alcatel refused to comment on the current hitch, although talks with Thales are expected to continue over the weekend.

However, Thales said that the proposed merger would be carried out at market prices, implying that Alcatel would be left with around 62 per cent of the combined stock.

Sources familiar with the talks said that 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 jet maker.

La Tribune said on Friday: "Yesterday the Elysee came out of the woods and expressed its support for EADS joining the [Thales] deal.

"Because the state has 31.3 per cent 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."