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France To Replace Thales Head, Sources Say

Nov. 5, 2012 - 09:44AM   |  
By PIERRE TRAN   |   Comments
Thales Chief Executive Luc Vigneron.
Thales Chief Executive Luc Vigneron. (ERIC PIERMONT / AFP / Getty Images)
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PARIS — The French government has decided to force out the executive chairman of electronics company Thales as the defense minister seeks to play a more active role in shaping the defense industry, two sources told Defense News.

News of Luc Vigneron’s impending ouster was confirmed by Loic Tribot La Spiere, chief executive of think tank Centre d’Etude et Prospective Stratégique, whose members include senior government officials and industry executives.

“There will be a change at the top of Thales,” Tribot La Spiere said. “This is the return of the government to developing the defense industry.”

Representatives from the Defense Ministry were unavailable for comment. Thales declined to comment, and Vigneron could not be reached.

The decision to replace Vigneron follows the collapse of a merger plan between BAE Systems and EADS, in which the companies tried to strike a deal without first winning the support of the government.

Merger talks fell apart Oct. 10, reportedly due to the German government’s disapproval.

That attempt by the private sector to forge a mega deal — the merger would have created the world’s largest defense and aerospace contactor — showed the days of government as a quiet, background partner were over.

Defense Minister Jean-Yves Le Drian is leading the effort to retake control of defense industry matters, taking over the reins held by the Elysée presidential office in the previous Sarkozy administration, Tribot La Spiere said. President François Hollande has little interest in defense matters, and Prime Minister Jean-Marc Ayrault has his hands full with other government business.

The government has drawn up a job description, and several names have been penciled in for consideration to replace Vigneron, Tribot La Spiere said.

Vigneron’s critics point to a “rigidity” in management style that has prevented the company from growing smoothly.

Part of their criticism is that, in three years, Vigneron has turned Thales from a large industrial group into a “well-performing small-medium enterprise.”

Vigneron’s reorganization of the company, including the sale in July of the Business Solutions unit to IT services provider GFI Informatique, has led to tense labor relations.

The reference to turning Thales, Europe’s largest defense electronics company with large exports, into a small-medium enterprise is a snub based on Vigneron’s previous post as head of the much smaller Nexter land weapons company.

Defenders of Vigneron said he has delivered on financial targets thanks to a large restructuring plan that has moved power to emerging markets, which are the source of growth in orders.

Vigneron was appointed to run Thales in 2009 as a compromise between potential candidates from the then-conservative government and Dassault Aviation, the industrial shareholder of Thales, with a 26 percent stake.

Nexter had 2011 sales of 851 million euros ($1.1 billion). Thales’ 2011 sales totaled 13 billion euros.

As the government seeks potential candidates, the list will include those with knowledge of the sector and the company and the ability to cooperate with other businesses and listen to the shareholders, Tribot La Spiere said.

An important requirement is a management style with a “human touch,” he added.

For supporters of Vigneron, there is little sense in changing chief executives when he is within 18 months of the end of his mandate.

“Does Thales need a tsunami within 18 months of the end of the mandate?” a company executive asked.

The executive, who supports Vigneron, pointed to his reorganization of the company, with Thales on track for a 6 percent profit margin by the end of the year, an improvement on past performance.

Vigneron said in a recent interview in business daily Les Echos that the number marked a record high.

Thales’ nine-month figures, published Oct. 25, showed a 1 percent increase in orders to 8.5 billion euros from a year ago, excluding the impact from Thales’ 35 percent stake in naval company DCNS.

The company racked up the orders without the boost from the 2011 contract to upgrade Indian Air Force Mirage 2000 fighters, the executive said.

Sales in the period also rose 1 percent to 8.7 billion euros.

That order growth shows that the shift in company decision-making power to emerging markets was working, the executive said.

The Thales share price has risen around 12.5 percent since the beginning of the year, the executive said.

Politically Motivated Move?

As Vigneron has balanced the interests of the government, which owns a 27 percent stake in Thales, and Dassault, which is a family-controlled company, he has tried to pursue an independent management.

The move to replace Vigneron is seen as politically motivated in some quarters, with the BAE-EADS factor seen as a smokescreen.

Vigneron’s supporters say the Socialist administration sees him as too close to Dassault, a reason to replace him. Dassault was unavailable for comment.

On the campaign stump, then-candidate Hollande gave a defense speech widely interpreted as criticizing the Sarkozy administration for handing Thales to Dassault.

Now that Hollande is president, the move to replace Vigneron is seen as part of the government taking back control of Thales from Dassault.

The Defense Ministry sees its policy priorities as operational and industrial, with the armed forces as the clients and industry as suppliers.

But in what marks a shift in policy, industry will participate but will not define purchasing policy.

At Thales, Vigneron’s reorganization plan involved putting the head of the staff department under the operations director, which was seen as the last straw in a difficult relationship with the trade unions. The unions saw the move as downgrading the importance of labor relations, with the workforce treated as a subsidiary interest to manufacturing.

The unions responded by writing an open letter Sept. 12 calling the reorganization a “cause of war” and two days later boycotted a seminar.

In the letter, the unions said the reform was “a real provocation, a break with the culture and practice of social dialogue.”

According to newspaper reports, internal candidates being considered include Pierre Eric Pommellet, senior vice president of mission defense systems, and Pascale Sourisse, senior vice president for six countries and two regions. Both executives know the company and are seen as highly competent.

External candidates include Laurent Giovachini, head of the information systems division of the privately controlled Communications & Systèmes company. Giovachini is a former senior official of the Direction Générale de l’Armement procurement office.

Another external candidate is Jean-Bernard Levy, a former executive chairman of media company Vivendi. Levy, however, lacks the industry knowledge seen as vital to the appointment.

MBDA Executive Chairman Antoine Bouvier is reportedly a candidate.

A second Thales executive said he could not see Thales staff accepting Bouvier as head because the missile company has, at times, clashed with the electronics company in offering rival products in export markets.

“An executive chairman is always exposed, that’s inherent in the job,” Vigneron said in an Oct. 26 interview with business daily Les Echos.

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