Team Infidel
Forum Spin Doctor
Wall Street Journal
May 13, 2008
Pg. B3
By Daniel Michaels and August Cole
Italian aerospace and defense conglomerate Finmeccanica SpA agreed to acquire U.S. defense-electronics firm DRS Technologies Inc. for $4 billion, or $81 per share.
The deal is the latest sign that European defense companies, benefiting from a weak dollar, are turning more aggressive to expand into the massive U.S. defense market.
The deal will make Finmeccanica a "key player" in the U.S. market and help DRS go after bigger contracts, the two companies said.
"Today's transaction is a perfect fit; the complementary technologies and platforms will establish a new competitive player in defense and security markets in the U.S. and around the world," Finmeccanica Chairman and Chief Executive Pier Francesco Guarguaglini said in a statement.
To meet tough U.S. regulations for foreign-owned defense firms, the companies plan for DRS to operate as a stand-alone subsidiary that will have a special oversight board.
In particular, DRS gives Finmeccanica an avenue into the sensors and communications market, which is seen as a strong segment of the defense industry because of its immediate relevance to U.S. forces deployed in Iraq, Afghanistan and elsewhere.
Finmeccanica also will get work on many of the Navy's newest ships and a key subcontractor role on a Boeing Co. contract with the Department of Homeland Security to protect the northern and southern U.S. borders.
The price represents a 32% premium to DRS's average share price over the past 30 days. On top of the offer price, the deal involves $1.2 billion in debt. Adding DRS's $2.82 billion in fiscal 2007 revenue and $3.49 billion of new orders would increase Finmeccanica's top line considerably.
The deal is expected to close by the end of the year, following U.S. national-security reviews.
Among the reviews, the Committee on Foreign Investment in the U.S. would look into such a deal to examine the national-security ramifications. If a deal poses a risk, for example, because an acquiring company supports countries hostile to the U.S. or jeopardizes the defense industrial base, the White House can block a deal.
The deal will be financed through a combination of new debt issued by Finmeccanica, proceeds from the sale of ancillary Finmeccanica businesses already under way and other sources.
Shares of DRS Technologies rose 3.2% to close Monday at $77.19 in heavy trading on the New York Stock Exchange.
Finmeccanica is a significant defense contractor in Europe and a major exporter, as well as a global player in the civilian aerospace business. The company works with Boeing on a range of civilian jetliner projects, including its new 787 Dreamliner. The Italian aerospace group is also a partner with U.S. defense giants Lockheed Martin Corp. and L-3 Communications Holdings Inc. on important Defense Department contracts.
To date, Continental European defense contractors have made little headway selling sophisticated defense electronics to the U.S. Department of Defense or buying U.S. companies engaged in the ultra-sensitive field.
British companies such as BAE Systems PLC and Rolls-Royce PLC have been the most successful foreign buyers of U.S. defense suppliers and are among the Pentagon's top suppliers. But European Aeronautic Defence & Space Co.'s new role in the U.S. military-aircraft market through an Air Force refueling-tanker contract headed by Northrop Grumman Corp. has raised the political profile of foreign firms angling for Defense Department work.
May 13, 2008
Pg. B3
By Daniel Michaels and August Cole
Italian aerospace and defense conglomerate Finmeccanica SpA agreed to acquire U.S. defense-electronics firm DRS Technologies Inc. for $4 billion, or $81 per share.
The deal is the latest sign that European defense companies, benefiting from a weak dollar, are turning more aggressive to expand into the massive U.S. defense market.
The deal will make Finmeccanica a "key player" in the U.S. market and help DRS go after bigger contracts, the two companies said.
"Today's transaction is a perfect fit; the complementary technologies and platforms will establish a new competitive player in defense and security markets in the U.S. and around the world," Finmeccanica Chairman and Chief Executive Pier Francesco Guarguaglini said in a statement.
To meet tough U.S. regulations for foreign-owned defense firms, the companies plan for DRS to operate as a stand-alone subsidiary that will have a special oversight board.
In particular, DRS gives Finmeccanica an avenue into the sensors and communications market, which is seen as a strong segment of the defense industry because of its immediate relevance to U.S. forces deployed in Iraq, Afghanistan and elsewhere.
Finmeccanica also will get work on many of the Navy's newest ships and a key subcontractor role on a Boeing Co. contract with the Department of Homeland Security to protect the northern and southern U.S. borders.
The price represents a 32% premium to DRS's average share price over the past 30 days. On top of the offer price, the deal involves $1.2 billion in debt. Adding DRS's $2.82 billion in fiscal 2007 revenue and $3.49 billion of new orders would increase Finmeccanica's top line considerably.
The deal is expected to close by the end of the year, following U.S. national-security reviews.
Among the reviews, the Committee on Foreign Investment in the U.S. would look into such a deal to examine the national-security ramifications. If a deal poses a risk, for example, because an acquiring company supports countries hostile to the U.S. or jeopardizes the defense industrial base, the White House can block a deal.
The deal will be financed through a combination of new debt issued by Finmeccanica, proceeds from the sale of ancillary Finmeccanica businesses already under way and other sources.
Shares of DRS Technologies rose 3.2% to close Monday at $77.19 in heavy trading on the New York Stock Exchange.
Finmeccanica is a significant defense contractor in Europe and a major exporter, as well as a global player in the civilian aerospace business. The company works with Boeing on a range of civilian jetliner projects, including its new 787 Dreamliner. The Italian aerospace group is also a partner with U.S. defense giants Lockheed Martin Corp. and L-3 Communications Holdings Inc. on important Defense Department contracts.
To date, Continental European defense contractors have made little headway selling sophisticated defense electronics to the U.S. Department of Defense or buying U.S. companies engaged in the ultra-sensitive field.
British companies such as BAE Systems PLC and Rolls-Royce PLC have been the most successful foreign buyers of U.S. defense suppliers and are among the Pentagon's top suppliers. But European Aeronautic Defence & Space Co.'s new role in the U.S. military-aircraft market through an Air Force refueling-tanker contract headed by Northrop Grumman Corp. has raised the political profile of foreign firms angling for Defense Department work.