One of the UK's biggest electronics companies, Racal, is being bought for £1.3bn by the French company Thomson-CSF.

Thomson-CSF is one of Europe's largest defence and commercial electronics companies.

The friendly takeover of Racal, and its defence subsidiary, allows Thomson-CSF to strengthen its position in the UK and Europe.

The deal will roughly double the size of Thomson-CSF's operations in the UK.

Consolidation in Europe

In the past year, the European defence industry has consolidated, and Thomson-CSF has been left on the sidelines.

The European Aerospace, Defence and Space Corporation (EADS) has been formed from the merger of Aerospatiale Matra, DaimlerChrysler Aerospace and Spain's CASA.

The takeover of Racal by Thomson follows last year's tie-up between British Aerospace and GEC's Marconii Electronic Systems.

Racal's diverse interests

The move gives the French group control of a raft of businesses from radar and sonar, to internet services, as well as Racal's 22% stake in the UK's National Lottery operator Camelot.

"The acquisition of Racal represents a major step in our development as a global electronics and systems groups. It will significantly strengthen our position in defence electronics and systems and accelerates our growth in commercial high technology activities," Denis Ranque, Chairman and Chief Executive of Thomson, said in a joint statement from the companies.

Sir Ernest Harrison, chairman of Racal said: "I firmly believe that this transaction is in the interests of both our shareholders and employees."

The cash bid values each Racal share at 450 pence, 4.7% higher than the value of Racal shares on Wednesday.

The bid price is 6.6% higher than the closing price on 30 December, the last business day before the two companies confiirmed they were in talks.

Even before synergies, Thomson expects the deal to enhance its earnings from the first full year.

Annual pre-tax cost savings from the deal are expected to total at least 50 million euros by the second year, the companies said.

Racal is one of the most famous names in UK industry. Its shrewdest move may have been the creation of mobile phone group Vodafone, which was spun off into a separate entity and is now the largest company in the UK