In a bid to expand its presence beyond a slowing home market to the largest market of them all, Italy's biggest defence company, Finmeccanica SpA, is planning to acquire US military-electronics manufacturer DRS Technologies Inc. in a deal estimated to cost it around $3 billion.
However, the Italian stock market hasn't taken too kindly to the proposed acquisition with the result that Finmeccanica's share price declined 2.1 per cent to €21.55 after possibility of the deal became public through the Wall Street Journal. This was its biggest fall in more than a month. In contrast, the DRS stock registered its largest increase in almost four years, rising 15 per cent to $73.41.
As per current valuations, the Italian major has a market capitalisation of about €9.16 billion or $14.1 billion, while the American company has a market value a shade over $3 billion. Finmeccanica is expected to pay a considerable premium for DRS shares, if the acquisition goes ahead. Latest reports indicate that certain ''accounting issues'' are holding up further progress on the deal.
If the two companies reach an agreement, the proposed transaction almost certainly will come under intense scrutiny by regulators concerned about the transfer of sensitive technologies, including new infra-red detector systems for the Missile Defense Agency's future missile-kill vehicle.
Finmeccanica, one-third owned by the Italian government, is one of the most successful foreign aerospace and defence contractors in the US, with big roles in a number of high profile military and commercial programs.
Its AgustaWestland unit is building the next US presidential helicopter fleet in conjunction with Lockheed Martin Corp., and its Alenia unit is making major fuselage parts, such as carbon fibre frames, for Boeing's new 787 Dreamliner.
DRS, based in Parsippany, New Jersey, makes engineering and electronics products such as power generators, radios and sensors, mostly for military use. It made a major expansion in 2006 when it bought Engineered Support Systems Inc. for about $1.9 billion. The last company to make a serious play for DRS had been L-3 Communications way back in 2004. However, the $42 per share proposal had been rejected then.
If Finmeccanica is successful in buying DRS, it would gain an expanded presence it has long sought in the US, and might well signal the start of a new wave of efforts by European aerospace and defence companies to acquire American entities in the wake of the Air Force's recent award of the $35 billion aerial tanker contract to the EADS-Northrop Grumman team. This contract is now being re-examined following home-grown Boeing's protest on its loss to the eventual winners.
Britain's BAE Systems Plc has been one of the overseas companies to take the lead in acquiring US firms, and bought armoured vehicle maker United Defense Industries Inc. for $4.2 billion in 2005 followed by the acquisition of body armour and truck maker Armor Holdings for $4.1 billion in 2007.
Rival European Aeronautics Defense and Space (EADS), the parent of Airbus, bought emergency response firm PlantCML for $350 million in April.
As for Finmeccanica, it completed the £61.6 million ($121 million) takeover of UK software and engineering services company Vega Group Plc this year. In 2004, Finmeccanica bought the 50 per cent of AgustaWestland that it didn't already own from GKN Plc. The manufacturer also entered a defence-electronics partnership with BAE Systems Plc the following year and has since taken over the venture.