Thales UK, the French-owned defence, aerospace and electronics company, was created following Thomson-CSF’s friendly takeover of Racal Electronics in June 2000. The merger of the two medium-sized companies was influenced by the UK Government’s desire for consolidation in the defence sector, leading to more competition among prime contractors. Thomson-CSF Racal was renamed Thales UK in December 2000 and today is the UK’s second-biggest defence contractor. It offers the Government a viable alternative to companies such as BAE Systems.
“By joining forces Thales UK could successfully compete as prime contractor to the Ministry of Defence [MoD],” says Jean-Yves Haagen, Thales UK’s corporate secretary and legal director. “Since then we’ve bid for some big UK defence programmes and have been fairly successful,” he adds.
The French lawyer joined Thales UK in September 2000, shortly after Thomson’s acquisition of Racal. Prior to that, Haagen was the US general counsel at French nuclear engineering company Framatome. Haagen says that he joined Thales UK because he relished the challenge of integrating the resources of the legacy companies.
As part of the integration process Haagen restructured Thales UK’s 23-strong legal function to reflect the changes in the company’s corporate structure. Prior to the takeover, Thomson’s legal function was decentralised and focused on commercial law, whereas Racal’s was centralised and focused more on corporate.
A year after the takeover, the lawyers were split into two main areas, corporate and operational. The restructuring of Thales UK’s legal department resulted in several redundancies from the legal team. Haagen says that the departing lawyers chose to leave because they did not want to relocate and that since he has been with Thales UK, the legal department has grown by 50 per cent.
The 13 lawyers who are based in Thales UK’s various operating companies handle day-to-day commercial matters. Meanwhile, the 10 lawyers who are based in Thales UK’s southwest London head office advise the company on M&A, litigation, project financing, property and environment issues.
Thales UK’s legal department handles virtually all of the company’s legal work in-house. “This is very motivating for the [legal department] because even the junior lawyers are trusted to get directly involved in big projects,” says Haagen.
But the lack of outsourced work does not stop most of the City firms from approaching Thales UK for instructions. “We have a policy that if [law firms] want to talk to us about what they’ve got on offer we won’t say no because there’s merit in doing this for both sides,” says Haagen.
Recently, Thales UK’s legal department has been instrumental in the negotiation of three significant projects: an aircraft carrier project for the Royal Navy; the so-called Future Integrated Soldier Technology (FIST) project; and the Future Strategic Tanker Aircraft (FSTA) programmes.
In January 2003, Thales UK was selected to join a unique three-way alliance between main rival BAE Systems and the MoD to design and build two aircraft carriers for the Royal Navy. Although BAE Systems won the prime contractor role on the multibillion-pound order, the 60,000 tonne warships that will replace HMS Ark Royal, HMS Invincible and HMS Illustrious will be built to Thales UK’s design. The first carrier is expected in service in 2012 and the second in 2015.
Meanwhile, in March 2003, Thales UK’s fortunes changed as it beat BAE Systems to undertake the assessment phase of the FIST programme. Haagen says that this was a key appointment for Thales UK as it was the first example of the company being appointed as the prime contractor. The company missed out on this role to build the two aircraft carriers.
FIST is expect-ed to provide a quantum leap in the capability of infantry (‘dismounted’ soldier) by integrating ad-vances in C41 (command, control, communications, computer and intelligence), target acquisition, navigation, survivability and lethality. FIST will also bring soldiers into the network-enabled environment. The assessment phase will be conducted during the next three years with a contract value of £15m. Thales UK is extremely well placed to be chosen for the subsequent demonstration, manufacturing and support phases, which are estimated to be worth some £2bn.
The third and most recent project relates to FSTA. Thales UK is a major partner in the AirTanker consortium that, in January 2004, was judged by the MoD to offer the best prospective value for money solution for the FSTA programme after BAE Systems and Boeing were deselected. The AirTanker consortium’s selection as the single bidder was the result of its £13bn bid to provide the Royal Air Force with air-to-air refuelling for the next 27 years. However, the consortium’s appointment is still subject to it satisfying the Government on certain criteria.
Although the consortium, which comprises EADS, Cobham and Rolls-Royce, is being advised by Clifford Chance, a legal working group comprising in-house lawyers from all the companies is also involved in the legal work. Haagen says that the legal department’s involvement in this project is very important as Thales UK is investing its own money in it. “The legal department has to understand all the risks that are attached to entering such a contract because it is also advising the company on how best to protect its equity interest,” says Haagen.
Meanwhile the MoD is being represented by longstanding adviser Simmons & Simmons. The MoD and the AirTanker consortium are now negotiating the deal.
As part of the AirTanker bid, Thales’ Raynes Park facility in South West London will provide the Military Avionics Mission System and will lead Thales’ involvement in the supply, integration, provision and support of a sophisticated electronics suite, dedicated to delivering the required specialist mission capability. Thales’ facilities at Crawley and Wells will also be heavily involved, providing AirTanker with simulators, ground and air mission planning systems, the defensive aids suite and integration.
Since the Racal takeover, Thales UK has not been involved in any further M&A activity. However, last November the company’s in-house lawyers handled the disposal of Thales GeoSolutions to Amsterdam-based Fugro for £147.5m. Thales UK’s disposal of the global provider of integrated survey services was in line with the company’s objective of refocusing its IT and services business as a result of the slump in the technology sector.
In addition to managing Thales UK’s legal department, Haagen is also responsible for the company’s corporate secretariat and corporate governance; health and safety; property; tax; intellectual property; corporate affairs; and export control and risk management departments. Haagen says that this work fits very well in his group as gives all the members of Thales UK’s legal department readily available access to members of the other departments.
|Thales UK’s key milestones|
Corporate secretary and legal director
|Sector||Defence, aerospace and electronics|
|Turnover||€1.7bn (£1.13bn) for year ending 31 December 2003|
|Corporate secretary and legal director||Jean-Yves Haagen|
|Reporting to||Group general counsel Pierre Charreton, Thales UK’s chief executive Alex Dorrian and group corporate secretary Alexandre Juniac|
|Main law firms||None|