Will Fincantieri buy Wass from Leonardo? What is going on
Fincantieri is reportedly negotiating the sale of Wass with Leonardo, an operation which would require a capital increase. Facts, hypotheses and comments and the performance of the naval group's stock on the stock exchange in the week leading to the approval of the 2023 accounts
New chapter in the collaboration between the two national defense giants in the underwater sector.
Fincantieri is reportedly negotiating with Leonardo the acquisition of Wass (Whitehead Alenia systems subaquei) – the naval armaments subsidiary of the former Finmeccanica, a leading company in the production of torpedoes, sonars and underwater defense systems – for an operation that could require an increase in capital.
This is what Agenzia Nova first reported from sources close to the dossier. Already on March 2nd, Milano Finanza had announced the desire of the group led by Pierroberto Folgiero to launch extraordinary operations to accelerate growth in the Defense sector, which today is worth around 40% of turnover. The Trieste-based shipbuilding group has identified underwater activities as one of the main lines of development, with the desire to position itself as a leader in the underwater domain within the national diving hub in La Spezia, inaugurated last December .
Precisely in the wake of this strategy, Leonardo and Fincantieri had already started a strategic collaboration in the underwater domain last October, signing a memorandum of understanding with the aim of pooling their respective skills and capabilities in the sector.
And in the wake of the rumors about the acquisition of Wass from Leonardo, today Fincantieri rushes to Piazza Affari: at 3pm it rises by +5.89% to 0.50 euros and the capitalization reaches almost 850 million euros. An increase after the decline at the beginning of the week when Fincantieri shares slipped by 2% due to new hypotheses of a capital strengthening linked to an M&A operation under study. Since the beginning of the year the stock has lost 13%.
Some more details are expected for next Friday 8 March when the Trieste company will illustrate its 2023 accounts.
All the details.
WHAT WASS DOES
Wass is the Livorno-based company active in the underwater defense industry that produces torpedoes and sonars. Today it employs 450 people. Since January 1, 2016, Wass' activities have merged into the Defense Systems division, within the Electronics, Defense and Security Systems sector of Leonardo, the former Finmeccanica, together with Oto Melara.
The potential agreement with Fincantieri would not include Oto Melara, about which in the past there had been rumors of interest on the part of the Trieste shipbuilding group.
In fact, in 2021 Leonardo had put Oto Melara and Wass, the two land and naval armaments subsidiaries, up for sale, a sale that has remained on stand-by until now. 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). The division's turnover is approximately 550 million euros. In particular, Wass is responsible for the development of the Black Shark torpedoes, those that will equip the U212 NFS (Near Future Submarine) submarines of the Italian Navy made by Fincantieri.
THE NUMBERS
The former Whithead Sistemi Subacquei activities which are the subject of the negotiation between Leonardo and Fincantieri generate revenues of around 150-200 million euros. This is what we learn from financial sources regarding the scope of defense activities in the underwater domain headed by Leonardo which the group could sell to Fincantieri, Radiocor revealed today.
Starting from autumn 2015, Wass' assets were merged into Leonardo Spa and until then had a book value of 25 million, in line with the historical cost. In the last approved financial statement of Wass Spa for 2014, revenues were around 106 million and in previous years they were in the 120-130 million area.
THE VALUE OF THE OPERATION
According to press rumors, the negotiations between Fincantieri and Leonardo are at an advanced stage and the operation will be carried out for the shipbuilding group through a capital increase in a range of 300-500 million euros which could also contribute to reduce debt which should stand at 2.7 billion euros at the end of 2023.
Il Sole also writes about advanced talks with Leonardo, which quantifies the operation for the acquisition of the Livorno company at 250-300. Even the Corriere speaks of a 200-300 million acquisition being studied. A figure that the shipbuilding group could finance with a capital strengthening or the issue of a convertible bond, reports Il Corriere .
According to Il Messaggero , Fincantieri is studying a capital operation of the order of 400 million to finance the operation, assisted by JPMorgan, Intesa Sanpaolo and Bnp Paribas.
ALREADY POWERED BY FINCANTIERI IN THE BONO ERA
It is not the first time that such an operation has been discussed, as already mentioned.
In 2021, Leonardo's negotiation with the Franco-German consortium Knds for the sale of the Defense Systems division had shaken the political world, as well as the trade union world. At the time there were rumors , never denied by Leonardo, of a probable sale of the Defense Systems to Fincantieri, led at that time by the CEO Giuseppe Bono. In this hypothesis, it would be an operation involving two Italian companies, both controlled by the MEF through CDP.
However, the game for the acquisition of Leonardo's Defense Systems division crossed national borders and the negotiation had expanded beyond the two state subsidiaries. The Franco-German consortium Knds had also presented Leonardo with an offer to purchase Oto Melara for around 650 million euros. In May, German Rheinmetall also presented a non-binding offer to Leonardo worth between 190 and 210 million euros for the former Oto.
For the offer of Fincantieri, a group controlled by Cdp Equity with 71.32%, there was therefore talk of the need for a capital increase supported by its main shareholder Cdp . In 2021 a recapitalization of this magnitude compared with Fincantieri's then market capitalization of around 1 billion euros.
ALL FINCANTIERI SHOPPING
The news of the renewed interest in acquiring Wass comes at a lively moment for Fincantieri from an acquisition point of view.
The operation would in fact follow the recent acquisition of Remazel Engineering, a leading engineering company in the design and construction of offshore equipment, cranes and turbine components. With that operation, Fincantieri thus intended to accelerate the growth of its technological, engineering and construction skills in the offshore and subsea sectors.
“The operation represents the first important piece of the development strategy in the sector of offshore and subsea technological operations, while promoting the consolidation in Italy of one of the excellences of the national industrial sector” commented Pierroberto Folgiero.
The acquisition of Wass would therefore represent a further move that fits into the strategy outlined by the CEO of the shipbuilding group in which Fincantieri aims to become "the locomotive of this new supply chain" in the underwater sector having already built 180 submarines.
CAPITAL INCREASE IN VIEW?
However, at the moment the two companies have not officially confirmed the deal worth almost 300 million euros.
According to the sources cited by MF , the CEO is studying a capital increase or the launch of a bond, with the aim of strengthening the capital, probably precisely in order to raise the resources necessary to acquire Wass. In this regard, other press rumors are highlighted according to which Cdp (shareholder of Fincantieri with a 71.3% stake) may not follow the capital increase in full while maintaining the majority in order to increase the free float.
WHAT HAPPENS TO THE NAVAL GROUP'S STOCK ON THE STOCK EXCHANGE
Meanwhile, before today's jump, “ MF 's revelations on Saturday 2 March of a capital increase (or, less likely, the issue of a convertible bond) to finance an M&A have crushed Fincantieri shares. Yesterday it fell by 4.15% to 0.473 euros for a market capitalization of 803.9 million, having lost 15% since the beginning of 2024. Trading boom: 10.7 million pieces (0.6% of capital) well above the daily average of the last 20 days of 144,325 pieces” reported Milano Finanza yesterday.
ANALYSTS COMMENT
Equita analysts point out that the interest in Wass had been known for some time and would be part of the management's strategy to strengthen the defense business (which today represents around 40% of turnover). In detail, the operation can be "the trigger for the start of an extraordinary operation to strengthen the financial structure". The brokers estimate, even before the possible M&A operation, a leverage of 6 times the "Nd/Ebitda ratio at the end of 2023 which drops to around 4 times at the end of 2025 while still remaining at high levels".
For Intermonte, the acquisition would be consistent with Fincantieri's strategy to strengthen itself in the naval/military business and with the agreement between the two groups essentially based on the separation "between the underwater domain and activities above sea level". Furthermore, they point out, the European defense plan announced yesterday provides limited funds and does not contain any particular innovations. However, the objective of increasing "procurement towards European companies from the current 20% to 50% in 2030 is potentially worth over 100 billion euros per year of increased spending towards European companies".
Banca Akros welcomed the operation, maintaining that it believes that Wass could be valued between 168 and 225 million euros, adding however "that a capital increase is clearly negative and partially discounted", reports Reuters .
THE EFFECTS FOR LEONARDO
«For Leonardo», continues Equita, «Wass represents a small business unit within the defense division for which updated numbers are not available. If the rumors are confirmed, we believe that the sale could make strategic sense while waiting to understand what the financial resources are for."
With the sale of Wass, Leonardo would disengage from a non-strategic activity, marginally improving the financial statement. As already mentioned, the agreement would not include the sale of the Oto Melara company, which produces naval guns and tank turrets. Meanwhile, the Defense has confirmed its intention to buy the Leopard 2 tanks, produced by the German Kmw and Rheimmetall (both had made an offer for the Leonardo subsidiary). Now the group led by Roberto Cingolani is aiming to involve Oto Melara in the program. “In the second part of March” Leonardo and the Franco-German KNDS group will meet to evaluate the progress of the partnership after the memorandum of understanding, signed in December, aimed at a strategic alliance.
Returning to the collaboration with Fincantieri, interviewed by Agenzia Nova , the co-director general of Leonardo, Lorenzo Mariani, had defined the agreement between the two companies as "very important", above all because "the prospects in diving are of great interest", even leaving aside – he had added – from any hypothetical negotiations on the sale of the torpedo business. The objective, Mariani had said, is to help "to better satisfy the needs of the domestic customer and to pursue more effectively the business opportunities that arise in the international market, as well as reflecting the shared vision that attributes to the diving sector an growing importance from an economic, environmental and defense point of view".
A final decision is expected between the end of April and the beginning of May.
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/economia/fincantieri-comprera-wass-da-leonardo-cosa-sta-succedendo/ on Wed, 06 Mar 2024 15:23:38 +0000.