Knowledgeable sources said Alcatel would bring into Thales its satellite subsidiary Alcatel Alenia Space and would in return get about 25 percent of Thales compared with 9.5 percent at present, but without bringing in at the same time the largely French-German group EADS.

One source close to the talks said the agreement might not even mention any possible future presence of European defence giant EADS, which initially insisted on being associated with the venture from the beginning with its satellite branch Astrium.

EADS was said to be unhappy with simply being mentioned in passing in the Alcatel-Thales agreement, having itself failed to gain entry into Thales.

Alcatel and Thales were looking for a formula that would be "hostile to no one" and thus mentioning that the door would be left open to EADS, "without other commitments," another informed source said.

Alcatel would in any case become one of the two main shareholders in Thales, almost on parity with the French state which currently holds 31.3 percent, but whose share would be reduced, the sources said.

German-US group DaimlerChrysler and Lagardere of France said Tuesday they would substantially cut their stakes in EADS.

But both groups said they were committed to remaining core shareholders in EADS, which owns 80 percent of the Airbus consortium and also has interests in military aircraft, satellites and other defence equipment.

The Thales-Alcatel plan for a new satellite venture would create a European business able to compete with US groups Loral Space, Boeing and Lockheed Martin.

Those enterprises account for about 45.0 percent of the global market for commerical satellites, worth 10.0 billion dollars in 2004. The French government wants to ensure that big space and satellite interests held by Alcatel remain in French and European hands.

Talks between Alcatel and Lucent of the US, ending on Sunday in an agreement for Alcatel to absorb Lucent, accelerated negotiations on the consolidation of European satellite interests.

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