The European Aeronautic Defence and Space company was left hanging, with two major shareholders announcing they would reduce their stakes to refocus on core activities of auto manufacturing and publishing.

Shares in Thales and EADS fell sharply, while Alcatel surged in a market that was slightly stronger overall.

"Thales fell back because the operation with Alcatel ends speculation over a purchase" of the electronics group by EADS, a sector analyst in Paris commented.

The two key players in Europe's consolidating satellite sector, Thales and EADS' Astrium unit, will now face off against US giants Loral Space, Boeing and Lockheed Martin, with a tie-up of the two Europeans possible at some point in the future.

The Thales/Alcatel satellite alliance comes as European groups battle for some of the 45-percent market share held by US rivals that was worth around 10.2 billion dollars (8.3 billion euros) in 2004, according to the specialist publication The Space Review.

It also came on the heels of Alcatel's announced merger with Lucent Technologies of the United States.

Thales gains a leading European role in satellites as well as electronics for combat aircraft and warships.

EADS lobbied hard to join forces with the two French groups, seeking to contribute Astrium in exchange for a stake of 15.0-20.0 percent in Thales, but was left out, at least for now.

Thales president Denis Ranque said Wednesday that he intended to boost cooperation with the Italian group Finmeccanica, which owns 33 percent of Alcatel Alenia Space.

Alcatel's 67-percent stake in the satellite unit will be handed over to Thales in exchange for 12.1 percent of its shares, giving Alcatel with a total holding in Thales of 21.6 percent.

The French state will remain the majority shareholder however, with a stake of 27.1 percent.

All is not lost for EADS, which could still be brought in at some point.

"The board of directors has mandated the president to examine ... projects that could be envisaged in to the fields of satellites and defense electronics with other European parties," the company said.

Including EADS would bring its Ariane launch vehicle on board, an advantage already enjoyed by Boeing which produces both satellites and rockets to fire them into orbit.

The Alcatel-Lucent agreement announced Sunday accelerated the latest talks on the consolidation of European satellite interests, following the creation of Astrium in 2000 and of Alcatel Alenia Space in July 2005.

Under the terms of Sunday's agreement, Lucent's strategic US defence interests will remain in US hands, while Alcatel is to dominate the rest with a holding of about 60 percent.

Those terms made it easier for Alcatel to contribute its satellite activities to Thales in exchange for Thales shares.

The uncertainty surrounding EADS was highlighted by news that two of its main shareholders, German-US automaker DaimlerChrysler and French defense and media group Lagardere, were to cut their holdings substantially.

DaimlerChrysler's interest is to be reduced from 30.0 percent to 22.5 percent while that of Lagardere will be lowered from 15.0 to 7.5 percent. Both groups said they were refocusing on their core activities, automobiles for DaimlerChrysler and the media for Lagardere.

Thales, meanwhile, expects to increase its sales this year by more than two billion euros or by 20.0 percent from the figure in 2005, a company statement said.

The group, which employs 60,000 people in 50 countries, posted sales last year of 10.3 billion euros.

The transaction requires the backing of Alcatel's executive board as well as that of Finmeccanica. It will also be submitted to Thales shareholders and personnel and to regulatory bodies.

On the Paris stock exchange Wednesday, the price of shares in Alcatel closed with a gain of 2.14 percent at 13.35 euros while shares in Thales fell by 2.52 percent to 36.36 euros.

EADS shares were down 4.44 percent at 32.73.

The CAC 40 index of leading shares gained 0.29 percent to 5,221.03 points.

Related Links
Thales
Alcatel
EADS