Leonardo Jumps as Potential IPO of U.S. Unit Seen Boosting Cash

(Bloomberg) -- Leonardo SpA shares jumped after Italy’s largest aerospace company said it’s considering an initial public offering of its U.S. defense electronic systems manufacturer.

Leonardo is evaluating an IPO of the DRS unit, among other options, and no decision has yet been made, the company said late Monday, confirming a report by Bloomberg News. The shares rose as much as 12% in Milan, and were 7.4% higher at 11:54 a.m., giving the company a market value of 3.1 billion euros ($3.7 billion).

The Italian group is weighing New York as a possible venue for a DRS listing as soon as the first half of 2021, according to people familiar with the matter. The company may sell a 40% stake in the unit, which is valued at about $3 billion, the people added. Italy has a 30% holding in Leonardo.

Listing DRS could boost Leonardo’s value, as the unit is worth almost as much as the market capitalization of the entire group.

“The operation may additionally lead to a potential cash-in for the group of around 1 billion euros, improving the overall financial structure,” Renato Gargiulo, an analyst at Fidentiis, said in a note Tuesday.

Leonardo IPO of U.S. Defense Unit May Aid Cash, Valuation: React

The pandemic has put the Italian group’s business under pressure. Leonardo reported negative free operating cash flow of 2.6 billion euros at the end of September as the health crisis led to a shift of receipts to the end of the year. Its chief executive officer, Alessandro Profumo, is also under fire after his conviction last month on charges of false accounting and market manipulation while chairman of Banca Monte dei Paschi di Siena SpA.

Revenue at DRS rose 6.4% to $1.93 billion in the first nine months of 2020, mainly because of activities related to the upgrade of equipment provided to the U.S. Army, the company said. In the same period, DRS posted earnings before interest, taxes and amortization of $114 million.

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