Italy to Back Fincantieri Capital Hike for Leonardo Assets Bid

(Bloomberg) -- Italian shipbuilder Fincantieri SpA has backing from its biggest shareholder for a capital increase that would let it make an offer for assets owned by defense company Leonardo SpA, according to people familiar with the talks.

State-backed lender Cassa Depositi e Prestiti SpA is willing to participate in a capital increase of as much as 700 million euros ($791 million), said the people, who asked not to be identified as the discussions are private. 

Fincantieri, whose heritage in naval ships goes more than two centuries, needs the infusion to help table an initial offer of 450 million euros to 550 million euros for Leonardo’s Oto Melara and Wass subsidiaries, which make naval artillery, rocket, missile launchers and cannons.

Fincantieri is competing for the assets with Franco-German consortium KMW+Nexter Defence Systems, or KNDS, whose own 650 million-euro overture is financially superior. 

Strategic Assets

The government has come under pressure from lawmakers to keep the businesses in Italian hands. While Prime Minister Mario Draghi can veto the sale of strategic assets, deploying Cassa Depositi’s financial resources would give the government greater sway over the outcome of the bidding process.

On Wednesday, center-right parties including Matteo Salvini’s League asked Defense Minister Lorenzo Guerini to keep Leonardo’s units under Italian control. They also suggested a broader role for Cassa Depositi, which is Fincantieri’s biggest shareholder and is controlled by the finance ministry.

Italy wants “defend a national role and guarantee a technologically competitive basis in the defense sector,” Guerini said on the bid earlier this month. This is an “essential condition for our sovereignty and to play a key role in the most important international programs.”

Fincantieri and Cassa Depositi are currently reviewing options, and a final decision on the matter is on hold and may take months to hammer out, the people said. Spokespeople for Fincantieri, Cassa Depositi and the government declined to comment.

Other Options

The potential capital increase would exceed a planned offer in order to give the Italian bidder a buffer to come back with more should KNDS itself respond with a higher bid, the people said. 

Another option that has been discussed includes splitting the two units and selling them separately, though that move is considered less attractive because it would diminish the assets’ joint defense capabilities. 

The talks around Oto Melara would offer Italy the chance to participate in the Franco-German MGCS program, which aims to develop a new European battle tank, and of which KNDS is a part.

Leonardo is selling the units following the acquisition of a 25% stake in Germany’s Hensoldt AG earlier this year, and after a delay in the listing of its DRS unit.

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