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DATE=7/23/98 TYPE=CORRESPONDENT REPORT NUMBER=2-235911 TITLE= FRENCH DEFENSE DEAL (L-ONLY) BYLINE=JULIAN NUNDY DATELINE=PARIS CONTENT= VOICED AT: INTRO: AFTER WEEKS OF UNDISCLOSED NEGOTIATIONS, FRANCE HAS CREATED THE BIGGEST DEFENSE COMPANY IN EUROPE, BRINGING TOGETHER THE PRIVATELY-OWNED "MATRA" MISSILE COMPANY AND THE AIRCRAFT-MAKER "AEROSPATIALE." JULIAN NUNDY REPORTS FROM PARIS. TEXT: SINCE DECEMBER, FRANCE'S SOCIALIST GOVERNMENT HAS BEEN TRYING TO BRING TOGETHER FRANCE'S HIGH-TECHNOLOGY ARMS-MAKERS. THE MOVE IS SEEN AS ESSENTIAL, IF FRANCE IS TO REMAIN COMPETITIVE AND BE A FULL PARTNER IN EUROPEAN EFFORTS TO COUNTER THE DOMINATION OF THE UNITED STATES (IN THE ARMS MARKET). BUT, AMID ALL THE TALK OF POSSIBLE NEW ALLIANCES, THE STRUCTURE THAT EMERGED LATE WEDNESDAY IS A TOTAL SURPRISE. THE PRIVATELY-OWNED MATRA AND THE STATE-OWNED AEROSPATIALE SAID THEY PLAN TO MERGE ALL THEIR AEROSPACE ACTIVITIES. MATRA IS ONE OF EUROPE'S MAIN MISSILE MAKERS, IN CONJUNCTION WITH BRITAIN'S AEROSPACE. AEROSPATIALE WAS THE FRENCH PARTNER MAKING THE FRANCO-BRITISH SUPERSONIC "CONCORDE" AIRLINER, AND IT IS ONE OF THE MAIN PARTNERS IN THE EUROPEAN "AIRBUS" CONSORTIUM. WHAT MAKES THE FRENCH DEAL SPECIAL IS THAT IT INVOLVES THE PRIVATIZATION OF AEROSPATIALE -- ALTHOUGH THE FRENCH GOVERNMENT SAYS IT WILL KEEP A CONTROLLING SHARE. JEAN-LUC LAGARDERE, THE PRESIDENT OF MATRA, WILL BE THE OTHER MAIN SHAREHOLDER WITH SOME 30 PERCENT IN THE NEW COMPANY. MR. LAGARDERE IS ONE OF FRANCE'S MOST POWERFUL BUSINESSMAN. APART FROM MATRA, HE IS ALSO THE CHIEF EXECUTIVE OF THE HACHETTE PUBLISHING AND MEDIA GROUP. //REST OPT// ACCORDING TO FINANCIAL ANALYSTS, THE NEW COMPANY WILL BE THE FOURTH LARGEST DEFENSE COMPANY IN THE WORLD, COMING AFTER THE AMERICAN GIANTS, BOEING, LOCKHEED-MARTIN AND RAYTHEON-HUGHES, AND JUST AHEAD OF BRITISH AEROSPACE. AEROSPATIALE, IN A PRECURSOR TO ITS AGREEMENT WITH MATRA, WAS ALREADY IN THE PROCESS OF MERGING WITH FRANCE'S DASSAULT AIRCRAFT MANUFACTURER, WHICH MAKES THE MIRAGE AND RAFALE COMBAT JETS AND FALCON EXECUTIVE PLANES. FRENCH FINANCE MINISTER DOMINIQUE STRAUSS-KAHN TOLD A PARIS RADIO STATION THAT THE MERGER OF MATRA AND AEROSPATIALE HAD BEEN ENCOURAGED BY THE FRENCH GOVERNMENT WITH THE PURPOSE OF STRENGTHENING THE EUROPEAN ARMS INDUSTRY. MR. STRAUSS-KAHN SAID THE MOVE IS A DIRECT RESULT OF AN AGREEMENT LAST DECEMBER BETWEEN BRITAIN, FRANCE AND GERMANY TO STREAMLINE EUROPE'S DEFENSE INDUSTRY. NOW, THE MINISTER SAID, THE NEW FRENCH COMPANY WILL BE ABLE TO ENVISION NEW, EUROPE-WIDE, ALLIANCES. (SIGNED) NEB/JWN/PCF/JO 23-Jul-98 11:08 AM EDT (1508 UTC) NNNN Source: Voice of America .