Alcatel's chairman presented the merger project with Lucent and announced Alcatel's intention to remain Thales' industrial partner within the framework, on the one hand, of the current shareholders' agreement, completed to guarantee the protection of national strategic interests, and, on the other hand, of the cooperation agreement with Thales which could be reinforced as part of the transaction detailed below.

French Government representatives indicated that, given the commitments made by Alcatel to respect national strategic interest, the merger envisaged between Alcatel and Lucent does not put into question the strategic partnership concluded with Thales.

The board duly acknowledged this information.

Evaluation of the project to contribute Alcatel's satellite activities and critical systems for Security to Thales.

The chairman submitted the principal guidelines of this project, which were approved by the Board.

This transaction is a major step in Thales' development by strengthening its key capabilities in the integration of mission critical systems and by widening its customer base, both public and private. This move is entirely consistent with Thales' strategy, as it reinforces its systems capacities, its dual technologies and its international dimension. Furthermore, it underpins the European foundations of the Group, supports its multi-domestic strategy and paves the way to leadership positions within high growth areas.

This transaction would primarily consist of the contribution of assets and would give way to:

An issuance of 26.67 million Thales shares in favour of Alcatel, subject to the vote of Thales' Shareholders General Meeting;

A cash payment of 673 million euros payable by Thales to Alcatel upon closing of the transaction.

An additional fee could be paid by Thales at the beginning of 2009 on the basis of the value of the 67% share in Alcatel Alenia Space as determined by a mandated expert.

This will lead to an increase in consolidated Group revenues of over 2 billion euros, resulting in an increase of 20% compared to consolidated 2005 revenues (10.3 billion euros). By 2008, this operation should allow Thales to derive operational synergies, estimated at approximately 50 million euros. These synergies will not negatively impact the employment situation at Thales. The transaction will be accretive on Thales adjusted earning per share from the first year onwards.

With this transaction, the industrial and commercial partnership with Alcatel will be strengthened. Technical cooperation agreements will be put into place to draw benefits from the important common base of technology of the two groups and from the convergence of civil and military telecommunications solutions. Commercial cooperation agreements will allow the two groups to respectively benefit from their strong international presence.

Alcatel's stake in Thales will evolve from 9.5% to 21.6%. The Industrial Partner (Alcatel and the Groupe Industriel Marcel Dassault) will hold 26.6% of Thales sharecapital. The French State will remain the main shareholder of Thales, with a stake of 27.1%.

The Board invited the Chairman to finalise discussions on these bases. The closing of this transaction is scheduled for the 2nd half of 2006, after the necessary reviews and clearances. It will be subject to consultation by the workers council, to the approval of the French "Commission des Participations et des Transferts", to the ruling of the financial market authorities, to the agreement of relevant competition authorities, as well as to the final agreement of Alcatel, within the framework of its projected merger with Lucent Technologies, and to the approval of the General Meeting of Thales' shareholders. Furthermore the final approval of Finmeccanica, Alcatel's partner in satellite activities, is also required for the contribution of these assets, in line with specific clauses of the relevant shareholders agreements.

Pursuit of European Consolidation

Thales confirms its ambition to be at the heart of the consolidation of the European defence, aerospace and security industry. The Group strives to pursue this momentum.

In line with this and in parallel to the project, now agreed in principle, of acquiring Alcatel's activities, the Board has mandated the chairman to evaluate additional projects with a similar approach. These projects could be envisaged in both the satellites sector and the defence electronics domain with other European players, should they show interest in such an initiative. The agreement of Alcatel, as industrial partner to Thales, would be required, in line with the shareholders agreement in force.

At the occasion of this agreement, Denis Ranque, Thales Chairman and CEO, declared : "The move with Alcatel is a truly industrial project which is entirely coherent with Thales' strategy. It strengthens the Group and positions it at the heart of future consolidation operations within the European Critical Systems for Defence and Security industry. In this way, the Group is in an excellent position to pursue discussions with its European partners."

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