KANT Can. KMW/Nexter Merger Complete

by Richard Pettibone, Aerospace & Defense Companies Analyst, Forecast International.

Finally, after years of discussion, Krauss-Maffei Wegmann and Nexter have merged.  The newly merged firm is now based in Amsterdam, with each partner holding a 50 percent stake in the umbrella company, KANT (KMW And Nexter Together). KANT is co-owned by the French government through Giat Industries and Germany’s Wegmann Group, which is controlled by the Bode family.

Together, the new operation’s portfolio includes Germany’s Leopard 2 and France’s Leclerc main battle tanks, artillery systems, ammunition, and a range of wheeled vehicles. The operation is now the third-largest military land systems contractor in the world, behind General Dynamics and BAE Systems.  KANT employs around 6,000 people and has an order book of approximately EUR6.5 billion ($8.2 billion), with turnover of around EUR2 billion.

KMW pursued such a merger because it feared being diluted in a tie-up in Germany with Rheinmetall, a company almost twice as big.  In the merger of Nexter and KMW, two similar-size firms with complementary portfolios have joined forces.  While KANT will be initially run as a 50-50 joint venture, a public offering will likely occur before the end of the decade.

While the impetus behind the deal is sound in the current economic climate, the execution will be critical to its success.  Officials have talked of creating an “armored Airbus,” but care must be taken to avoid the messy governance of earlier cross-border merger efforts such as EADS (now Airbus Group) and MBDA.

One of the difficulties facing KANT will be the potential for job losses in its operations.  France reportedly faced significant pressure to protect Nexter’s workforce.  Likely as a result of this, the operation has adopted a dual-CEO management structure, one from France and the other from Germany.  It is an odd choice considering that EADS/Airbus Group tried it in the past and ultimately eliminated the dual position, opting for a traditional single CEO. But regardless of the merger, both nations are, for the time being, interested in maintaining control over armored vehicle production. Integration of the operations will be more at the management level than in the factories. For now, each nation will keep its operations intact, acting as subsidiaries of the new KANT. As time wears on, the situation will likely change once everyone is used to the nature of the cross-border firm.

With tensions in the world high thanks to conflict in the Middle East and tensions in Ukraine, the opportunity for vehicle sales has increased in response. In addition, both France and Germany are investigating updating their current armored systems, which should put KANT in a solid position to fulfill any new requirements.

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