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Last Updated: Monday, 9 June, 2003, 17:29 GMT 18:29 UK
BAE shares boosted by merger talk
Eurofighter jet
BAE Systems is the UK partner in the Eurofighter project

Shares in UK defence giant BAE Systems have been boosted by reports it will pursue a tie-up with a major US rival after rejecting an approach from French-owned Thales.

The company has confirmed it rejected the informal merger proposal from Thales, which would have seen the creation of a group with a stock market value of about 7bn.

At the weekend, newspaper reports suggested BAE was looking to merge with one of its US rivals, Boeing or Lockheed Martin.

BAE shares finished the day up 4% at 154p - their highest level for six months.

The Department of Trade & Industry declined to comment on the report in the Sunday Telegraph.

Forging links

BAE said on Sunday the company was keeping an open mind on how it planned to achieve its "long-stated" goal of forging a transatlantic link.

"We have said in the past that if there is going to be consolidation in the industry, we want to be a part of it," a BAE spokesman said.

BAE is thought to be eager to join forces with Boeing or Lockheed in order to improve its access to the booming US defence market.

US defence group General Dynamics has also been named as a potential merger partner.

"The company has to grow in the US. That is where the market is and the money is. A deal could quite easily happen sooner rather than later," the Sunday Telegraph quoted an unnamed BAE executive as saying.

The US already accounts for about a third of BAE's sales.

Cross-border defence sector mergers are complicated by restrictions on foreign ownership of defence firms. The UK government has imposed a 15% limit on the size of individual foreign stakes in BAE.

And a tie-up between BAE and Boeing could force the British firm to dispose of its 20% stake in Boeing's European arch-rival, Airbus.

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