Italy’s Finmeccanica agreed to acquire U.S. defense electronics group DRS Technologies a month before the U.S. Government Accountability Office announced its decision supporting Boeing’s appeal against the award of the KC-X military tanker contract to EADS/Northrop Grumman. It is questionable whether the GAO’s decision signals a wider U.S. intent to block foreign encroachment on the U.S. defense market. Nevertheless, Finmeccanica definitely wants a piece of the action on the other side of the Atlantic and with the euro at an all-time high against the dollar, even the inflated price it has agreed to pay may seem like good value. Finmeccanica started working on the deal in the spring of 2007.
The boards of both Finmeccanica and DRS have approved the takeover, which includes the Italian firm’s picking up almost $1.3 billion in debt, but it still has to clear U.S. regulatory approval. This is unlikely to be completed until the fourth quarter of this year and may require some enforced divestitures or legal separation of some of DRS’ more sensitive military divisions. However, Finmeccanica chairman and CEO Pier Francesco Guarguaglini has refuted analysts’ suggestions that his company will have to sell some DRS businesses.
