Leonardo snatches from Piazza Affari: +6% in mid-morning, posting the best rise in the Ftse Mib, which in the same minutes travels positive by 0,9%. The wave of purchases was triggered by the news that the US subsidiary of the group, Leonardo Drs, signed an agreement of merger with Rada Electronic Industries Ltd, a supplier of military tactical radars, a rapidly growing sector especially for infrastructure protection, border surveillance and anti-drone applications. The agreement opens the door to listing on Wall Street and Tel Aviv.
The terms of the operation
As a result of the merger - informs a note - Leonardo Drs will acquire 100% of the share capital by Rada in exchange for the assignment in favor of the current shareholders of Rada del Approximately 19,5% in the Leonardo Drs, of which Leonardo, through its US subsidiary Leonardo Holding, will continue to own 80,5%. The transaction is subject to the approval of Rada's shareholders and requires certain regulatory clearances.
Double listing in sight: Nasdaq and Tel Aviv
Rada is already listed on the Nasdaq and Tel Aviv and, upon completion of the transaction, expected by the end of the year, Leonardo DRS will also be listed on the two lists with the symbol "DRS".
Profumo: "Let's strengthen Leonardo Drs, and there is still room for growth"
“There is an excellent level of complementarity between our US subsidiary Leonardo Drs and Rada: strategic, commercial and financial – commented by Alessandro Profumo, CEO of Leonardo – As promised, we have focused the Leonardo Drs portfolio and are now strengthening Drs with Rada in the strategic core businesses, with further potential for growth, margin expansion and opportunity in the Leonardo Group. We agreed on an all-stock merger transaction, also taking the opportunity to list DRS in the current context of market volatility, thus realizing what was envisaged last year”.
Analysts promote the Leonardo Drs-Rada merger
Banca Akros analysts note that Rada's market capitalization at yesterday's close was $579 million (about 551 million euros). In any case, it is a rapidly growing company, given the Cagr of revenues of around 22%, which trades at 22 times its Ebit.
Based on the broker's calculations, the operation values DRS at approximately 2,3 billion euro (or about 10 times its Ebitda as of 2022). At the moment, the press release of the operation "does not mention the possible synergies", which "could be considerable", the analysts continue.
In March 2021, Leonardo had tried to raise around $700 million by selling his 22% stake in DRS at $20-22 per share, but then had decided to postpone the IPO, "citing adverse market conditions as a reason". Today, however, the implicit assessment of Drs "is lower than that assumed a year ago, equal to 3,2 billion dollars".
Summing up, they write from Akros, “we believe the news is interesting from a strategic point of view"and "the size of the target company is quite small“. Analysts consider it positive that "the transaction is not cash", with an implied value of Drs-Rada (100%) equal to "about 50% of Leonardo's current market capitalization".
