The French state has frozen orders worth 300 million euros placed with defence groups Thales and Safran, according to sources in the defence ministry, which is pressing the companies to consolidate some of their activities.

A ministry source said the decision did not amount to a cancellation and concerned "commitments to order" material this year.

The government owns stakes in both Thales and Safran. The decision to suspend orders is seen as increased state pressure on the groups to resume discussions, which ended in May, on combining some of their operations.

At the request of the government, Thales and Safran, active in aeronautics, defence and security, had been in talks for months on ending the parallel development of certain technologies.

earlier related report
Zodiac rejects Safran tie-up
Paris (UPI) Jul 16, 2010 - A leading French aircraft equipment maker has snubbed an unsolicited tie-up bid from a state-controlled aerospace engineering company, Safran.

The flat rejection of the purported $3 billion deal by Zodiac aerospace effectively forces the French-based aero-engine and aircraft equipment maker, Safran, to look elsewhere for external growth.

In recent weeks, Safran's chief executive officer, Jean-Paul Herteman, had addressed a letter proposing that the two companies examine "the merits of bringing their activities together," according to a company statement. The proposal was based on "the search for economies of scale, the trend towards electric aircraft and the need for the emergence of a strong national French champion," it said.

Still, Zodiac's board of administrators turned down the offer unanimously.

"The company has no need of a partner," said Zodiac Chairman Olovier Zarrouati. "And if it did, there would be lots of better candidates than Safran." Board members indicated that they saw no synergies in a merger, in either strategic or commercial form.

Despite the public rejection, French media indicated that Safran was maintaining pressure on Zodiac, which makes aircraft systems and cabin interiors.

Safran co-owns the world's largest jet engine company together with General Electric. A potential merger, experts say, would forge a company with annual sales estimated at $12 billion.

In fact, news of the tense standoff between Zodiac and Safran shot the former's shares up by nearly 7 percent on Friday.

Safran has ruled out a hostile takeover move of the smaller company.

In 2007, Safran and Thales, another state-controlled aerospace and defense group, held abortive merger talks. It remained unclear whether there were attempts to revive the proposed merger.

DefenseNews reported that the French government was keen to see a merger of "onboard electronics, optronics and inertial navigation businesses held in Safran's Sagem defense division and those of Thales."

Thales management, however, has refused to relinquish control of the onboard electronics, which is sees as key to the group.

The French government owns about 30 percent of Safran.

Since the bid was made public, analysts have been perplexed as to why Safran, which has been repeatedly snubbed by Zodiac, would make a formal tie-up bid. Still, officials in the company say that with strong growth expected and with the company debt-free, it is looking for way to expand its growth.

Analysts also cite the need for backing from a key group of Zodiac's family shareholders as crucial to any deal.

Zodiac's operation dates back to 1896 when it set off as an aeronautical firm making warships and airplanes. The company says it first introduced the concept of the inflatable boat in the 1930s. Sales rocketed during World War II.