Italy's Finmeccanica looking to buy US defence electronics contractor DRS Technologies for $3 billion

10 May 2008

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.