That’s why the German Rheinmetall focuses on Oto Melara (Leonardo)
The German Rheinmetall has formalized a non-binding offer for a minority stake in Leonardo's Oto Melara. Facts, numbers and comments
Rheinmetall to the conquest of Oto Melara, the land armaments subsidiary put up for sale by Leonardo together with the other Wass unit.
The German defense giant has formalized a non-binding offer for a minority stake in Oto Melara. With the offer, Rheinmetall aims to take over up to 49% of the company, a stake valued at between 190 and 210 million euros. This was revealed by the Reuters agency, specifying that Rheinmetall presented the offer to Leonardo at the end of May. The overall valuation for the company could thus reach nearly 430 million.
Thus, the risk for the sale of the former subsidiaries Oto Melara and Wass, now Leonardo's Defense Systems business unit, is livened up.
Also according to Reuters , in March Leonardo had put aside (for the moment ) the sale of Oto Melara and Wass due to the Ukrainian crisis.
But now this offer reopens the game. Both the Franco-German consortium Knds and the Italian Fincantieri have expressed interest in the two divisions.
However, the last word is up to the government, which can exercise golden power given the strategic nature of the asset. The future of the subsidiaries Oto Melara and Wass, which Leonardo intends to sell, is closely linked to the entry of the Italian group into the MGCS program.
Meanwhile, Leonardo's + 2.25% to 10.46 euros stands out on the Milanese price list in the wake of Rheinmetall's indiscretion. “The Leonardo stock reaches its highest price in Piazza Affari since February 2020” reports MF .
All the details.
THE OFFER OF THE GERMAN RHEINMETALL
According to rumors from Reuters , Rheinmetall has set a value of 190-210 million euros as an indicative price for the 49% stake in Oto Melara. This would result in a total value of almost 430 million euros for the entire unit.
WHAT OTO MELARA DOES
Oto Melara and Wass, which produce naval guns and torpedoes respectively, employ more than 1,500 workers in four Italian factories (La Spezia, Brescia, Livorno and Pozzuoli). Since 2016 they have both been part of Leonardo's Defense Systems division. The division's turnover is approximately 550 million euros.
In particular, Oto Melara produces the most common cannon on warships all over the world: the 76/62 purchased by the fleets of 53 countries, including the French and German ones. In addition, the company has developed the “Volcano” technology which makes artillery shells very similar to missiles, with autonomous guidance in the final trajectory and an increased range.
In 1985 the La Spezia company became part of an equal consortium with Iveco, forming the current Cio Iveco-Oto Melara, leader of the land armaments industry.
THE VALUE OF THE FORMER LEONARDO SUBSIDIARY
The group does not provide economic data on subsidiaries. The most recent ones, explains Akros, "indicate that Oto Melara recorded revenues of 356 million euros in 2015 with an EBIT of 38 million (EBIT margin of 10.7%)". “In 2014, revenues were 390 million with an EBIT of 46 million (EBIT margin of 11.8%)” reports MF .
Oto Melara is currently valued at between 500 million and 600 million euros. Furthermore, with the increases that Leonardo has registered on the stock market in recent times , there is also the enhancement of the two assets Oto Melara and Wass.
Furthermore, its value is expected to increase if and when it gets work on the new combat crawler, for which our Army has already planned considerable investments.
BESTINVER'S COMMENT
“Based on the latest sales of the two divisions, Oto Melara and Wass, equal to approximately 500 million euros, we estimate that Oto Melara alone can represent approximately 70% of this figure, approximately 350 million euros. The implicit range of the ev / sales multiple incorporated in the hypothesized price is between 1.1 and 1.2 times and an implied ev / ebit of approximately 10.0 / 11.0 times with an EBIT margin of approximately 10.7% , substantially in line with the median of comparable multiples, so no surprise on the valuation front ”, Bestinver Securities calculated.
THE ANALYSIS OF BANCA AKROS
"If we assume that Oto Melara has a turnover of 430 million, the offer would evaluate the company once its revenues, a multiple to be compared with the average of about 1.3 times of Bae and Rheinmetall", specified Banca Akros.
THE PLAN OF THE GERMAN COLOSSUS
In addition, Rheinmetall also has plans to go up 2% or more in Oto Melara in the future, according to Reuters . A move that would give it the majority and control of the company.
Last March at Sole 24 Ore , Rheinmetall CEO Armin Papperger stressed that “it would be a good thing if Rheinmetall could increase investments in Italy. You can only invest if you have a partner. We could find cooperation with Oto Melara. I'm happy to buy even a minority ".
Furthermore, the German manager raises: “Italy could play a role in Europe. Must refurbish the Army light tanks, with the Ifv, our Lynx family would be suitable. The intellectual property would remain in Italy. I'm not working to join a program that is over after 5 years, but to establish a long-term relationship ”.
Through Rheinmetall Italy, the German company already operates six factories in the country and employs 2,500 people.
The German group had already informally expressed to the government its interest in Oto Melara for an industrial collaboration, with the aim of participating in the programs of the new tanks (the new light tank for the Aifv and MGCS Army).
In the Defense Dpp 2021-2023, the government has budgeted 2.141 billion until 2035 for the new Army tracked vehicle. The new vehicle will replace the old Italian Dardo vehicles.
TOWARDS PERFUME RESISTANCE?
However, Leonardo's CEO Alessandro Profumo had already held back on Rheinmetall's interest.
Leonardo would prefer Oto Melara Knds as a partner in Rheinmetall, fearing competition in electronics, a business in which the Piazza Monte Grappa group aims for leadership .
At the hearing in the Chamber at the end of December, Profumo had stressed that the group will take a decision on the sale of Oto considering various aspects: not only the price offered, also the possibility of international cooperation.
"Knds is potentially an interesting partner because it has 75% of the Main battle tank program and does not compete with Leonardo on electronics," said Profumo, adding that Italy would benefit from being part of the European tank project of the future. Main Ground Combat System (Mgcs).
THE EXECUTIVE UNCOGNITA
Now, however, a decisive issue is the approval of the executive.
According to Reuters , the Italian government has been informed of Rheinmetall's offer but the German firm has yet to secure executive support.
The Italian government, which controls Leonardo (30% through Mef), wants to have a say in the agreement for the future of Oto Melara and Wass. The executive has in fact initiated an interminesterial table between Mef, Mise and Defense to closely follow the sales process. This was announced by Defense Minister Lorenzo Guerini (Pd) in the Chamber at the end of November 2021.
In particular, Rome wants to have a role in a consortium at European level for land military equipment, in which some of the assets of Oto Melara and Wass could be folded.
According to DefenseNews , Rheinmetall's intention to acquire a minority stake, rather than the 100% purchase proposed by Knds, has garnered favor from Italian politicians worried about handing over the company to a foreign buyer just as Ukraine does. war on the value of the know-how of armored vehicles.
ENTRY IN THE MGCS PROGRAM
Finally, before giving its support to any change of ownership in Oto Melara, the Italian government is demanding the country's inclusion in the MGCS project.
German-led, MGCS is one of two defense collaborations between France and Germany, which aims to replace the French Leclerc and the German Leopard 2 by 2035. The second program is the Future Combat Air System ( FCAS ), led by France, to which Spain has also joined.
Both Italy and Poland have repeatedly asked to join the MGCS program, but Paris and Berlin wanted to keep the project exclusively bilateral until the development of a prototype.
Currently, the program has completed the first two phases and France and Germany have so far allocated identical budgets to cover the initial studies.
The inclusion of Italy could create the opportunity for Leonardo to provide sensors and electronic defense systems for the new tanks, Reuters points out.
Both Knds and Rheinmetall are already part of the MGCS program.
“The company formed by the German Krauss Maffei and the French Nexter is the leader of the future“ European ”tank, in which Rheinmetal has a minority role. If the latter became a shareholder of Oto Melara, by including Italy in the project, it would assume a decisive weight with – in fact – a leadership of Berlin compared to Paris ”comments Repubblica .
Furthermore, as Gianni Dragoni remarks on his blog Poterdeboli "Rheinmetall talks about" maintaining the full sovereignty of the industrial structure "of Oto Melara and says that its current product portfolio would complement international products in key areas and mutually strengthen both Oto Melara and Rheinmetall. Oto Melara would remain an autonomous and independent company ".
An aspect to consider given that politics and trade unions call for the maintenance of Italian character for Oto Melara.
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/innovazione/perche-la-tedesca-rheinmetall-punta-su-oto-melara-leonardo/ on Fri, 03 Jun 2022 10:49:30 +0000.