Thomson-CSF could launch a bid as early as this week, although any bid would have to be an agreed one, the Sunday Times newspaper said, citing French industry sources.

A successful Thomson-CSF takeover of Racal, the world's biggest battlefield radio maker, would deliver the strong British presence it has coveted since losing out to BAE SYSTEMS Plc last year in the battle to win GEC's defence group Marconi.

Thomson-CSF talked with Racal last year about buying its defence electronics arm, but the talks had broken down because of differing views about its valuation, the newspaper said.

Thomson-CSF then valued the radar, sonar and communications operation at less than 500 million pounds, while Racal thought it was worth more than 600 million pounds.

"A Thomson takeover of the whole of Racal would break the negotiating log-jam by avoiding the sticking point, because of the commercial value of Racal's commercial electronics interests," the Sunday Times said.

The newspaper did not include any specific sourcing in its report, except to say that French industry experts said last week the deal was close to being finalised but had not been signed off yet.Spokesmen for Racal and Thomson-CSF were not available for comment to Reuters on Sunday.

The report of a possible Thomson-CSF bid for Racal follows the French group's announcement on December 15 that it would create a new industrial electronics business group with revenues of 6.2 billion French francs ($949.4 million) and 7,000 employees. It said then the regrouping would create the conditions needed for external growth.Thomson-CSF is 33.4 percent owned by the French government, with French telecoms equipment firm Alcatel increasing its stake in Thomson-CSF to over 25 percent in November.

Thomson-CSF has a market capitalisation of about 5.5 billion euros ($5.53 billion). The report did not say how the bid would be funded, but it said Thomson expected to list its shares in London after the deal.

Earlier this year, Racal sold its telecoms arm to Global Crossing Ltd of Bermuda for $1.65 billion and said then it would return a special dividend of 500 million pounds or 167 pence a share using the proceeds.

The Sunday Times said Thomson-CSF's 2.0-billion-pound bid would include this special dividend of 500 million pounds.

Speculation surfaced in August that Racal would be broken up and that Thomson-CSF and Germany's DaimlerChrysler Aerospace (DASA) had approached Racal to buy its defence operations. DASA is now part of the EADS group.US firm Raytheon Co. was also thought to be interested in buying Racal's defence arm.

Racal said along with its interim results in December it was carrying out a strategic review of its defence electronics unit and planned to complete the review by the first quarter of 2000.

The defence unit contributed sales of 175.9 million pounds and profits of 10.8 million pounds in the half year to October 15, out of total group sales of 390.1 million pounds and profits of 38.8 million pounds.

It had a forward order book of 500 million pounds.Alongside its defence electronics operations, Racal owns a card payments system maker, a 26.7 percent stake in national lottery operator Camelot and a 21 percent stake in Satellite Information Systems.The Sunday Times said it understood Britain's ministry of defence had given Thomson clearance to buy Racal, which would make Thomson the second-biggest player in the British defence sector behind BAE Systems Plc. Racal's shares closed down two pence at 555 pence on December 30, valuing the group at 1.61 billion pounds. A 2.0-billion-pound bid would value Racal's shares at around 687 pence a share, a 23-percent premium to its last closing share price.

Racal's share price has risen 59 percent this year, outperforming the FTSE by 32 percent and lifting its price-to- forecast-earnings multiple to 28 times, compared with Thomson's 27 Times forecast earnings.