Drs, Leonardo's US subsidiary, lands on Nasdaq with the acquisition of Rada Electronic Industries, an Israeli supplier of advanced military tactical radars
Drs, Leonardo's American subsidiary, incorporates the Israeli Rada and goes public in New York and Tel Aviv.
Today the group led by Alessandro Profumo announced the merger between Leonardo Drs and Rada Electronic Industries, a leading company in tactical radars including critical infrastructure protection, active military protection and applications against drones.
As a result of the merger, a note reads, Leonardo Drs will acquire 100% of the share capital of Rada in exchange for the assignment to the current shareholders of Rada of approximately 19.5% in Leonardo Drs. The former Finmeccanica group, through its US subsidiary Leonardo Holding, will continue to own 80.5% of the combined company.
The transaction is, among other things, subject to the approval of the shareholders of Rada and the obtaining of certain regulatory clearances. Upon completion of the transaction, expected in the last quarter of the year, Leonardo Drs will be listed on both Nasdaq and Tase (Tel Aviv stock exchange) under the symbol "DRS".
So double listing in sight for Leonardo Drs. Last year Leonardo had in fact postponed an initial public offering (IPO), citing "adverse market conditions". The IPO project envisaged the placement of 22-25% of Drs for a total income between 730 and 800 million for the parent company which would have kept between 75% and 78% of the American group in the defense sector.
As Rada reports on the website , the combined company has $ 2.7 billion in revenues and Ebitda of $ 305 million in 2021.
And in the wake of the news, Leonardo flies to Piazza Affari: the stock takes the lead of the FTSE MIB + 1.15%.
All the details.
Under the agreement, DRS will acquire 100% of the Israeli manufacturer of tactical radar equipment, with RADA's current shareholders then taking a 19.5% stake in the combined business.
The subjects did not disclose the financial details of the transaction.
WHAT IS THE ISRAELIAN RADA
Founded in 1970, the Rada group is based in Israel in Netanya. It is a leading provider of advanced software-defined military tactical radars. The company is a leader in tactical radars, serving attractive and fast-growing markets, including critical infrastructure protection, border surveillance, active military protection, and drone applications. Rada is listed on Nasdaq and on the Tel Aviv stock exchange.
THE EFFECTS OF THE MERGER
As the note points out, "Leonardo Drs and Rada together are expected to generate significant growth fueled by their competitive product range that meets their customers' core needs".
“The combination of Rada's tactical radars and Leonardo Drs' strengths as a leading mid-tier defense provider is expected to make the combined company a leader in the rapidly growing Force Protection market, increase our market potential, expand our international opportunities and ultimately it will generate shareholder value, ”said William J. Lynn III, CEO of Leonardo Drs.
STRONG COMPLEMENTARITY BETWEEN THE TWO COMPANIES
Furthermore, “Rada also has a strong complementarity with the rest of the Leonardo Group” indicates the note. “Its advanced tactical radars complement Leonardo's sensor portfolio, enabling it to gain a stronger position in the emerging sectors of the tactical operational segment. The operation also adds a domestic presence in Israel and supports the development of the international market for Leonardo, at the same time allowing Rada to access opportunities in European and export markets and programs, leveraging on Leonardo's global presence ".
THE PERFUME STRATEGY
Thesis supported by the words of Leonardo's CEO Alessandro Profumo: “There is an excellent level of complementarity between our US subsidiary Leonardo Drs and Rada: strategic, commercial and financial”.
“As promised, we have focused the Leonardo Drs portfolio and are now strengthening Drs with Rada in the strategic core businesses, with further growth potential, margin expansion and opportunities in the Leonardo Group. We agreed on an all-stock merger, also taking the opportunity to list Drs in the current context of market volatility, thus realizing what was expected last year ”added Profumo.
THE LATEST OPERATIONS OF LEONARDO DRS
In fact, in recent months the US subsidiary has rationalized the business. Last April Leonardo Drs signed a binding agreement for the sale of the shareholding in the Advanced acoustic concepts (Aac) joint venture to Tdsi, a subsidiary of the French company Thales. Aac is a joint venture between Leonardo Drs and Thales Defense & Security active in the supply of sound.
In addition, the agreement followed the March announcement of the signing of the final agreement on the sale of the Global Enterprise Solutions (Ges) business.
THE COMMENT OF MINISTER GUERINI
The operation also received approval from the Italian defense.
“The agreement for the merger of Rada into Leonardo Drs is very positive and represents an important opportunity for the Italian defense industry”, commented the Minister of Defense Lorenzo Guerini on the news announced by Leonardo. “This news – added the minister – confirms the international excellence of our defense and security industrial sector”.
THE EVALUATION OF DRS ACCORDING TO BANCA AKROS
Finally, analysts' opinions were positive.
According to the calculations of Banca Akros, the transaction values Drs around 2.3 billion euros (or around 10 times its gross operating margin, ebitda, as of 2022).
In March 2021, Leonardo tried to raise around 700 million dollars by selling 22% of his stake in Drs at 20/22 dollars per share, but then decided to postpone the IPO, "citing adverse market conditions". Today, however, the implicit valuation of Drs "is lower than that assumed a year ago, equal to 3.2 billion dollars". Summing up, they write from Akros, "we consider the news interesting from a strategic point of view" and "the size of the target company is rather small". Analysts believe it is positive that 'the transaction is not in cash ”, reports Repubblica .
THE OPINION OF OTHER ANALYSTS
Equita Sim states that “starting from the current market of Rada, the implicit valuation of Drs is about 3 billion dollars, consistent with the range of 2.9-3.2 billion dollars of the hypo that failed last year. With this operation, Drs will be listed and the considerations made at the time become topical again, writes MF .
"Considering that 19.5% of the new entity will be attributed to Rada, the implicit valuation of Drs should be around 2.1 billion dollars" against our valuation of around 2.8 billion dollars ", reports Bestinver Securities.
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/innovazione/che-cosa-fara-leonardo-drs-con-lisraeliana-rada/ on Tue, 21 Jun 2022 10:46:01 +0000.