► Fincantieri signs agreement for the acquisition of Leonardo S.p.A.’s “Underwater Armament Systems” business

Trieste, May 9, 2024 – Fincantieri announced today that the Board of Directors has resolved – and subsequently signed – an agreement to acquire from Leonardo S.p.A. (“Leonardo”) the “Underwater Armament Systems” business line (the “Transaction”).

The completion of the transaction, taking into account the signed commercial collaboration agreements and the recent acquisition of Remazel, accelerates and consolidates Fincantieri group’s leadership as a technological integrator in the underwater and naval defence sector, in line with the announced strategy and following a series of already established industrial agreements.

As a result of the transaction, Fincantieri will acquire not only the technologies related to torpedo’s production but also the control of the country’s underwater acoustic technologies, which will be a fundamental element in the group’s growth strategy in the underwater sector, focusing on new applications in the military field, innovative solutions for the security of civilian underwater infrastructure, as well as new products in the civilian sector.

The acquisition, expected to be finalised at the beginning of 2025, will include, in addition to the fulfilment of usual suspensive conditions for this type of transaction, the transfer of the aforementioned business unit to a new company (“NewCo”).

The value of the acquisition is equal to €300 million as fixed Enterprise Value, subject to usual price adjustment mechanisms, in addition to a maximum of €115 million as a variable component based on certain growth assumptions linked to the performance of the UAS business line in 2024, for a total maximum Enterprise Value of €415 million.

Pierroberto Folgiero, CEO of Fincantieri, commented: “We are extremely proud of this transaction, which represents a crucial milestone in our equity story and in the implementation of Fincantieri’s underwater strategy for the next industrial cycle. Underwater technological independence and our global operational capabilities, in this new geopolitical and industrial scenario, will be key features which will allow us to fully exploit the potential of Fincantieri in the interest of our Group’s industrial and financial stakeholders.”

The underwater domain

The underwater domain is becoming increasingly relevant for military and security issues concerning critical subsea infrastructures such as gas pipelines, cables for telecommunications and electrical transmissions, as well as for the surveillance of marine mineral deposits.

The underwater domain holds significant strategic importance in the Mediterranean Sea, a crossroads between three continents and densely populated with critical infrastructure. Activities such as intelligence, surveillance, defence, and deterrence are experiencing strong growth, necessitating a dedicated industrial focus.

Fincantieri’s leadership in Italian underwater operations dates back to the early 1900s with the construction of the first Italian submarine, the “Delfino”. Production and development were halted from 1945 to 1968 due to post-war constraints. Production resumed in 1968 with the manufacturing of small to medium submarines (Toti class and Sauro class). From 1996 to 2019, Fincantieri, in collaboration with ThyssenKrupp MS, strengthened its capabilities to develop large submarines for the domestic market, including exploring hydrogen fuel cell propulsion as an alternative to nuclear propulsion. Since 2019, Fincantieri has developed its first fully in-house submarine, designed new submarines for the Italian Navy, and built mini-submarines and midgets, thereby expanding its export share to markets such as the Middle East, the Black Sea and Southeast Asia, not yet served by existing industrial offerings.

During 2023, Fincantieri also collaborated with the Italian Navy and specialised companies in the sector to develop a proprietary solution for an underwater propulsion system utilising lithium battery.

Additionally, in 2023, the Group entered into agreements with several entities: with Leonardo for initiatives related to sensors and electronic systems; with C.A.B.I. Cattaneo S.p.A., a leading company in designing, developing, and supplying underwater vehicles for the Special Forces of the Italian Navy; with Sonsub, Saipem S.p.A.’s centre of excellence specialising in underwater technologies and solutions. In the civilian sector, the Group signed an agreement with WSense, a deep tech company concentrating on underwater monitoring and communication systems. On February 15, 2024, the Group completed the acquisition of Remazel, a global leader in designing and supplying high-complexity top-side equipment, including launch and recovery systems for underwater vehicles.

Description of the “Underwater Armaments Systems” business line

The business line “Underwater Armaments Systems” was originally established as a company (Whitehead Alenia Sistemi Subacquei S.p.A.) specialising in the design and construction of underwater defence systems, particularly torpedoes, countermeasures, and sonars. In early 2016, the company merged into Leonardo, becoming a business line, and was renamed “Underwater Armaments Systems” (“UAS”). The business line also includes a 50% stake in GEIE EuroTorp (established with Naval Group and Thales), dedicated to the commercialization of the MU90 lightweight torpedo and is located at two sites, Livorno and Pozzuoli. In 2023, the UAS business line generated revenues of approximately €160 million and an EBITDA of €34 million.

Description of the Transaction

The Transaction involves Fincantieri’s acquisition of the UAS business line owned by Leonardo, including the following steps: (i) the transfer, by Leonardo, of the UAS business unit to NewCo and (ii) the subsequent sale, also by Leonardo, of the shares representing the entire share capital of NewCo, free of any constraints, in favour of Fincantieri. The value of the deal amounts to a fixed Enterprise Value of €300 million, subject to customary price adjustment mechanisms, plus a maximum of €115 million as a variable component upon the occurrence of certain growth assumptions related to the performance of the Business Unit in 2024, for a total maximum Enterprise Value of €415 million. Pro-forma for the Transaction and the acquisition of Remazel, Fincantieri’s 2023 revenues are €7,913 million and 2023 EBITDA is €438 million, with an EBITDA margin of 5.5% (+30bps vs Fincantieri stand-alone).

The Transaction constitutes a Related Party Transaction pursuant to the “Regulation on Related Party Transactions”, adopted by Consob with Resolution No. 17221 of 12 March 2010 and subsequent amendments and additions (the “RPT Regulation”), and the Regulation on Related Party Transactions adopted, and last updated on 10 June 2021, by the Board of Directors of Fincantieri and classified, in particular, as a “more significant transaction”. As a result, the Transaction was previously examined, on 7 May 2024, by the Control and Risk Committee of Fincantieri, in the exercise of the functions of the Committee responsible for Related Party Transactions, which unanimously expressed its positive opinion on the completion of the Transaction. The information document pursuant to Article 5 of the RPT Regulation will be published in accordance with the applicable laws and regulations.

Strategic Rationale of the Transaction

The underwater market represents a significant growth opportunity for Fincantieri for several reasons:

  • Fincantieri already possesses deep knowledge in the underwater sector, thanks to its long history in building submarines, predominantly, but not exclusively, for the Italian Navy (MMI). Throughout its history, Fincantieri has constructed 180 submarines.
  • The target underwater market is expected to grow exponentially in the coming years (€100 billion cumulative civil and military addressable market for Fincantieri in the period 2024-28 with a CAGR of 15%[1]), presenting an opportunity to expand Fincantieri’s leadership in an emerging sector that requires technological means and solutions, addressing a demand not yet served by the existing industrial offering.
  • The evolution of the underwater sector towards a complex and diversified environment with multiple technologies increasingly highlights the need for a player to consolidate skills in underwater industrial activities, which are currently fragmented mostly among SMEs.
  • The establishment of the National Subsea Dimension Pole (PNdS), a strategic hub for cooperation between public and private entities aimed at promoting, developing, and coordinating synergies among the various national excellences in the underwater sector, represents an opportunity to position Fincantieri as a natural leader, first asserting one’s expertise in defence before expanding into civil sectors.

The UAS business line is the main player in Italy, and a relevant player in all major product lines, in underwater market segment, with a leadership position in the torpedoes market, a relevant position in the countermeasure segment and good opportunities to expand in sonar. Thanks to its cutting-edge technical capabilities UAS enjoys a strong positioning in the EU, in the Middle East and the Far East.

Funding of the Transaction

In consideration of the need for a flexible capital structure consistent with the group’s growth strategy outlined in the 2023-2027 Industrial Plan, the Transaction is expected to be funded through a share capital increase by way of rights offering.

The Board of Directors of Fincantieri, held today, has resolved to submit for approval by the extraordinary Shareholders’ Meeting, in single call, scheduled for June 11, 2024, the proposal to assign to the Board of Directors, pursuant to Article 2443 of the Italian Civil Code, the power to resolve a share capital increase, in one or more tranches, divisible and with payment for a maximum total amount of € 400 million (including any premium), through share capital increase by way of rights offering to eligible parties pursuant to Article 2441, comma 1, of the Italian Civil Code.

In order to encourage wider participation in the capital increase, the power to resolve also provides that the shares issued in the context of the Capital Increase will be combined with free of charge warrants which give the right to subscribe to newly issued Fincantieri shares originating from a capital increase, in a divisible manner, for payment, to service the exercise of the same for a total amount equal to a maximum of Euro 100 million, exercisable within 36 months, in addition to the amount of the Capital Increase, for which the proposal of the power to resolve to the Board of Directors, will be submitted to the approval of the same extraordinary Shareholders’ Meeting.

The issuing of warrants will also enable shareholders who subscribe to the Capital Increase to benefit from any future appreciation of the Fincantieri stock, linked to the implementation of the Business Plan.

The price of the capital increase in option cum warrant and the maximum number of shares issued, as well as any further characteristics of the warrants, will be established by the Board of Directors in proximity of the initiation of the rights offering.

The Capital Increase is supported by the commitment, subject to certain condition precedents in line with standard market practice, undertaken today by the controlling shareholder CDP Equity S.p.A. for a total of up to Euro 287 million, corresponding to its full share pertaining to the Capital Increase.

Furthermore, in the context of the Capital Increase, BNP Paribas, Intesa Sanpaolo, Jefferies, JP Morgan and Mediobanca will act as Joint Global Coordinators and Joint Bookrunners and have entered today into a pre-underwriting agreement with Fincantieri pursuant to which they have undertaken, on the terms and subject to the conditions set forth in the agreement in line with market practice for similar transactions, to enter into an underwriting agreement for the subscription of any newly issued shares that remain unsubscribed at the end of the auction period of the rights offering, net of the commitment of the controlling shareholder.

As per standard practice, the underwriting agreement relating to the Capital Increase will be entered into, subject to the occurrence of the conditions envisaged by the aforementioned pre-underwriting agreement, immediately before the launch of the pre-emptive rights offering, as soon as the Board of Directors has defined the final terms of the Capital Increase.

It is expected that the Capital Increase will be completed by the end of the year, subject to market conditions, to the granting of the power to resolve upon the capital increase by the extraordinary Shareholders Meeting and the receipt of the necessary authorizations by the competent authorities.

The Board of Directors also resolved to submit to the extraordinary Shareholders Meeting a reverse stock split functional to the Capital Increase, in the ratio, to be defined by the Board of Directors, within the limit of one new share for each maximum n. 10 existing shares. It is expected that the reverse stock split will be carried out before the launch of the rights issue relating to the Capital Increase.

Finally, the extraordinary Shareholders’ meeting will also be called upon to deliberate on granting the Board of Directors the power to resolve, if necessary, a capital increase excluding the subscription rights, divisible and paid for, also in multiple tranches, starting from the eighteenth month from the adoption of the meeting resolution granting the delegation of power and until the expiry of the fifth year from the adoption of this resolution, of up to ten per cent of the existing share capital at the market value of the shares under Article 2441, paragraph 4 of the civil code, for the pursuit of the growth strategies  and further strengthening of the Company, and, more in general, to satisfy its financial needs and growth prospects.

The explanatory reports of the Board of Directors regarding the proposals submitted to the extraordinary shareholders meeting, pursuant to art. 125-ter of Legislative Decree no. 58/1998, will be made available at the authorized storage mechanism eMarket STORAGE and deposited at the company headquarters within the terms of the law; a copy of the report will also be available on the Company’s website at www.fincantieri.com.

[1] Source: Fincantieri elaboration on Janes database