It was a long time coming, but the Holy Grail of defense industry consolidation between France and Germany is about to be realized. As budget austerity grips Europe, Krauss-Maffei Wegmann and Nexter have finally – after years of on-again, off-again discussion – signed an agreement on a merger plan.
As part of the process, the two companies are contributing their shares into a newly incorporated joint holding company based in the Netherlands. They will each receive 50 percent of the shares of this holding company, which will become the sole shareholder in KMW and Nexter. With this step complete, the merger of KMW and Nexter should be fully completed by the end of the year.
The newly merged firm – tentatively dubbed KANT, for KMW And Nexter Together – will be the third largest land defense contractor in the world, behind General Dynamics and BAE Systems. Ownership is to be split between the French government’s Giat Industries holding company and KMW parent the Wegmann Group (controlled by Germany’s Bode family). The single entity will employ around 6,000 people and have an order book of approximately EUR9 billion ($9.9 billion), with turnover of around EUR2 billion.
KMW pursued such a merger, as it feared being diluted in a tie-up in Germany with Rheinmetall, a company almost twice as big. The merger of Nexter sees two similar-size firms joining together with complementary portfolios. While KANT will be initially run as a 50-50 joint venture, it will likely see a public offering before the end of the decade.
While the impetus behind the deal is sound in the current economy, 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 and MBDA.