Finmeccanica sees possible rival bid for DRS

MILAN (Reuters) - Italy's Finmeccanica acknowledged on Monday it may face rival suitors for U.S. defence firm DRS Technologies Inc DRS.N, which it agreed to buy for $4 billion last week, but Airbus parent EADS denied it was meeting to draw up a counterbid.

“There’s always the chance that someone could decide to step in,” Finmeccanica Chief Executive Pierfrancesco Guarguaglini told La Repubblica newspaper in remarks published on Monday.

“It’s possible, not so much from an American company but from a European one,” he added.

Finmeccanica SIFI.MI shares rose 0.1 percent to 20.30 euros, while EADS EAD.PA closed down 0.35 percent at 16.91 euros. The DJ Stoxx index of industrial goods and services .SXNP was up 0.8 percent.

EADS Chief Executive Louis Gallois last week highlighted possible synergies from a DRS takeover and said the firm remained on EADS’ target list, hinting at a possible counterbid as the Franco-German Airbus parent expands in defence.

Analysts say Finmeccanica’s move has raised the prospect of EADS being strategically sidelined in the lucrative U.S. defence market despite winning a major order for air refuelling tankers.

However, EADS denied a Reuters report that its top managers were meeting as early as Monday to take a decision on whether to launch a counterbid for DRS.

“There is no executive committee meeting today,” an EADS spokeswoman said. She declined to comment further on DRS.

EADS might be reluctant to mount a hostile counteroffer for DRS at this point, but wants to keep its options open in case the DRS-Finmeccanica deal should fall through, said a source familiar with the company’s views.

The deal must still be approved by the DRS board, its shareholders and regulatory authorities in both Europe and the United States.

Despite recent improvements in Franco-U.S. relations under President Nicolas Sarkozy, some analysts say Franco-German EADS could find it harder than its Italian rival to win over the Committee on Foreign Investment in the United States (CFIUS), which must approve sensitive foreign investment.


Since cross-border hostile bids are effectively considered taboo in defence, it is argued that EADS would also have to trump Finmeccanica by a solid margin to gain the support of DRS management, while it is struggling to cut expenses at home.

“It may be that DRS is too big a bite for EADS. The deal is likely to be CFIUS-sensitive and it might be expensive to get over the break-up fee,” said JP Morgan analyst Harry Breach.

EADS is anxious to expand in the U.S. defence market but found itself at the centre of a political storm after beating Boeing BA.N to the $35 billion order for military air tankers.

Gallois told staff in March the company would propose two U.S. acquisitions by the end of the year, according to an internal memo obtained by Reuters.

EADS has since announced the purchase of California-based emergency response and security firm PlantCML for $350 million.

EADS executives have said it has appetite for acquisitions worth around $1 billion each in defence, security or services.

European companies have been attracted to U.S. acquisitions as the euro climbs against the dollar, despite the turmoil in global financial markets.

Guarguaglini said that if it bought DRS, Finmeccanica would be well-positioned globally but did not rule out looking at other deals.

“One could expect more, but now we are in a very good position in Italy, in the UK and in the United States ... and we can go ahead very well with this structure.”

Additional reporting by Jo Winterbottom in Milan, Tim Hepher in Paris, Andrea Shalal-Esa in Washington. Writing by Tiziana Barghini; Editing by Quentin Bryar, Elizabeth Fullerton, Richard Chang