By Giulia Segretti and Elvis Armellini
ROME (Reuters) – Italy’s Leonardo is reducing its stake in U.S. unit DRS as new CEO Roberto Cingolani looks to expand the state-controlled group with major roles in European defense projects.
Leonardo said late on Wednesday it would launch a public secondary offering of 16.5 million shares, or a 6.3% minority stake in DRS, worth about $344 million, reducing its stake to less than 74%, according to Reuters calculations.
The funding will increase the defense contractor’s flexibility in funding investments and acquisitions, it said in a statement.
Cingolani said in an analyst call after third-quarter results last week that the company would sell assets in a “moderate manner” to raise funds for new joint ventures and European projects.
Two sources at Leonardo confirmed that the DRS deal was part of that strategy.
Cingolani, a former government minister who became CEO in May, has acknowledged the need to build a broad European coalition to take advantage of rising defense budgets.
“Competitors are in the US, competitors are in the East. We cannot have domestic competition within the domestic market and within Europe. We have to create giants,” Cingolani said.
European officials have long called for greater defense cooperation between states, accompanied by increased spending, to create coherent forces capable of responding to any crisis.
Leonardo wants to boost its participation in the Global Combat Air Program (GCAP) next-generation fighter jet between Italy, Britain and Japan and join the German-led Leopard 2 tank programme.
It has pointed to its cross-border MBDA European Missile Company joint venture with Airbus and BAE Systems as a model for the projects.
“Cingolani has recently confirmed that the group is evaluating a potential disposal… to finance new investments… to strengthen the company’s global market position,” Intesa Sanpaolo wrote in a daily research report to clients. is the goal.”
Leonardo’s Milan-listed shares were up 1.7% at 1404 GMT, having risen more than 80% since the start of the year.
Some analysts expressed surprise that the company was reducing its stake in DRS, which was acquired 15 years ago in a $5.2 billion deal when the Italian group was known as Finmeccanica.
“(The move) further weakens Leonardo’s hard-won U.S. performance,” said Nick Cunningham of equity research firm Agency Partners. He said that unusually for a non-UK foreign contractor, they “didn’t do all that much” to take advantage of their US defense presence.
“So maybe they consider it a source of money or are even phasing out the disposal,” he said.
(Reporting by Giulia Segreti and Elvis Armellini in Rome; Editing by Kirsten Donovan)