Leonardo, what will the former Finmeccanica do (and how much will it collect) by selling Drs
Bloomberg's rumors about the listing of Drs, the US company that works for the Pentagon. Leonardo's exploit on the stock market. The objectives of the group with the IPO. The numbers at stake. And all the details on American society
Leonardo's exploit in Piazza Affari: best performance among the Milanese blue chips today for the title of the aerospace and defense group (up about 8% after being suspended for excess of the rise).
The quotes, they explain from the operating rooms, benefit from the rumors published by Bloomberg on the possible listing on the stock exchange of the American subsidiary Drs, which works for the Pentagon, circulated yesterday and not denied by the group chaired by Luciano Carta and led by the CEO, Alessandro Profumo .
The objectives? Raise cash, push investments, reduce debt and raise the stock in Piazza Affari.
THE RUMORS
The rumors speak of an IPO on the NYSE in the first half of 2021 with the placement on the market of 40% of the capital and a valuation of 100% equal to 3 billion dollars.
LEONARDO'S NOTE
Leonardo replied to these items, emphasizing that, "as usual", the company "constantly evaluates various options with a view to creating value for its shareholders, including the possibility of proceeding with the listing of Leonardo Drs", but specifying that "no formal decision on the matter has been taken". According to what Il Sole 24 Ore writes today, the advisor could be Mediobanca.
THE EFFECTS IN THE BAG
“The rumors about Drs circulated yesterday towards the close of the stock market session, in which the shares of the group had a boom rise of 16.27% to 5.05 euros. More than triple the Ftse Mib index (+ 5.42%). Last Friday, after the presentation of the results as at 30 September, Leonardo had lost 7.23% to 4.34 euros ”, underlined Gianni Dragoni of Sole 24 Ore .
WHAT DID BLOOMBERG WRITE ON DRS
Leonardo is considering an initial public offering from its US manufacturer of defense electronics systems as the pandemic reduces cash flow to Italy's largest aerospace company, Bloomberg wrote yesterday. For this reason, according to the agency, Leonardo is already evaluating an IPO of the Drs unit in the first half of 2021.
IPO PLAN
The company – added Bloomberg – could sell a 40% stake in the unit, which has a value of about 3 billion dollars, according to rumors collected by the agency: "The listing of Drs could increase the value of Leonardo, since the unit is almost as good as the market capitalization of the entire group ”.
CASH FLOWS
"The pandemic has put the Italian company's business under pressure – wrote Bloomberg – Leonardo recorded a negative free operating cash flow of 2.6 billion euros at the end of September, as the health crisis led to a shift in collections at the end of the year.
THE INDISCRIPTIONS OF THE SUN
“40% listing on the New York Stock Exchange of the company or sale: these are, according to Il Sole 24 Ore , the options on the table for Drs, the US subsidiary of the Leonardo group active in defense electronics. To study the various solutions, writes the Confindustria newspaper, an assignment would have been entrusted to the US investment bank Goldman Sachs. In the case of a 100% sale of the Leonardo company, it could collect about 3 billion dollars, writes Gianni Dragoni del Sole , but it would lose about 20% of its revenues and would also have an impact on its profitability. In the first nine months of 2020, Drs showed a Ros (ratio between ebitda and revenues) of 5.9%, higher than the Ros of the parent company Leonardo, which stopped at 5.5%. "Also in the first 9 months of 2020, Drs achieved revenues of 1.93 billion dollars, up 6.4% compared to the same period of 2019", underlines the financial daily.
THE ANALYST'S OPINION
"The listing of Drs would mean that Leonardo would be an international defense company without a wholly owned subsidiary in the largest defense market in the world," Citigroup analyst Charles Armitage said in a statement: "This would certainly limit the strategic ambitions of the 'company".
WHAT DRS
Drs produces state-of-the-art devices and software for military forces and spy agencies.
THE NUMBERS OF DRS
DRS's revenues increased 6.4% to $ 1.93 billion in the first nine months of 2020, mainly due to activities related to upgrading equipment supplied to the US military, the company said. In the same period, Drs recorded earnings before interest, taxes and depreciation of $ 114 million.
THE EQUITA REPORT
"Although this option was not made explicit in the business plan presented in 2018, we believe it is a possible scenario", note the Equita analysts: "If confirmed – they add – the deal on this assessment would be very positive, as Drs alone would represent the '87% of Leonardo's market cap ”and the company,“ placing 40%, would raise a billion, strengthening the financial structure and overshadowing doubts about free cash flow ”.
THE PURPOSES OF THE OPERATION
"The purpose of the operation being studied by Profumo, is to raise cash to reduce debts – wrote Il Sole 24 Ore – Net financial debt at the end of September was equal to 5.88 billion, increased by 1.58 billion in 12 months (+ 36.8%). For the purchase of Drs in 2008, Finmeccanica disbursed 3.6 billion dollars and took on debt of 1.6 billion. According to R&S (Mediobanca), "the total value of the acquisition was 5.2 billion dollars".
THE PURCHASE OF DRS
In October 2008, the former Finmeccanica acquired for 3.4 billion euros the company Drs Technologies, a company specialized in the sector of services and integrated electronic products for defense founded in 1968. At the moment Leonardo Drs is the largest subsidiary of Leonardo in the United States with about 2 billion dollars in revenue (as stated on the website ) and 6 thousand employees.
THE TOP OF DRS
William J. Lynn III is the CEO of Leonardo Drs, John Baylouny holds the role of executive vice president, Chief Operating Officer and Michael Dippold that of executive vice president, Chief Financial Officer.
THE PROXY AGREEMENT
As emerges from the 2019 financial report , "The Leonardo Drs group is managed through a Proxy Agreement, which provides for the appointment by Leonardo Us Holding (parent company of Leonardo Drs) – after consultation with Leonardo Spa – of at least 5 Proxy Holders (of US nationality, resident there, with security clearance and independent from Leonardo DRS and the Leonardo Group) and subject to the approval of the DSS, who, in addition to acting as Director of the company – together with 2 Non Proxy Directors whom they themselves appoint by choosing them among the candidates indicated by Leonardo US Holding -, they also exercise the right to vote, a prerogative of Leonardo US Holding, as part of a fiduciary relationship with the latter on the basis of which their business is conducted in the interest of the shareholders and consistently with the US national security needs. The Proxy Holders cannot be removed by the shareholder except in the case of willful misconduct or gross negligence in their behavior or, with the consent of the DSS, if their conduct violates the principle of preserving the value of the Leonardo Drs asset and the legitimate economic interests in the head. to shareholders. Furthermore, the Proxy Holders undertake to put in place specific governance procedures in order to ensure the shareholder can exercise their prerogatives, with the consent of the DSS and always in compliance with the constraints imposed by the Proxy Agreement with reference to "classified ”, And to oversee respect for the independence of the company's management with respect to the possible influence of the foreign shareholder. The shareholder, on the other hand, is directly responsible for decisions regarding extraordinary transactions, acquisition / disposal of assets, assumption of debts, granting of guarantees and transfer of intellectual property rights relating to defense ”.
Basically, for the most sensitive activities, Leonardo cannot put his beak in the management, he can only collect the dividends: manager, address and staff would have remained 100% American.
THE LATEST ORDERS
This year's major orders for Leonardo Drs include: a $ 44 million contract announced in October to provide advanced hardware and software for an allied Middle East customer, a global purchase agreement (BPA) worth up to $ 255 million from the Defense Information Technology Contracting Organization, to provide the United States Indo-Pacific Command (Usindopacom) with satellite communications and support for headquarters, components and major subordinate units operating in the region; a $ 62 million contract signed in August for the supply of electronic critical elements for the US Navy's Mark 41 vertical launchers (VLS) designed to launch missiles at hostile threats. In July, Leonardo Drs announced a $ 120 million contract with the US Naval Air Systems Command. At the end of June, however, Leonardo Drs won a $ 206 million contract for the installation of vehicle kits for the MFoCS II on US Army vehicles.
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/economia/leonardo-drs-borsa-finmeccanica/ on Tue, 10 Nov 2020 15:13:30 +0000.