PHOTO – This illustration, taken May 3, 2022 shows the Leonardo stock graph and logo. REUTERS/Dado Ruvic/Illustration

By Federico Maccioni and Gianluca Semeraro

MILAN, (Reuters) –Leonardo’s U.S.-based electronic unit DRS agreed to purchase Israel’s RADA Electronic Industry, according to the Italian defence group. The deal will enable the company to list on Nasdaq.

Leonardo shares rose by 9.7% in the wake of the news. This makes it Milan’s top-performing blue-chip index.

DRS will take over 100% of Israeli tactical radar equipment maker, while current shareholders in RADA will receive a 19.5% interest.

Analysts were told by William J. Lynn III (DRS Chief Executive) that the all-stock purchase comes as the conflict in Ukraine is raging and the potential for drone attacks highlight the importance of modern force protection systems.

Lynn explained that there are international opportunities for expansion through the combined global footprint. He also said that ongoing conflicts “would likely motivate European countries toward acquiring force protection assets.”

Leonardo’s Chief Financial Officer Alessandra Genco stated that DRS will be paying a premium of around 20% for the past 45 trading days to acquire RADA. However, she did not give any additional financial details about the deal.

Banca Akros and Brokers Bestinver have estimated that DRS is worth between $2.1 billion to $2.4 billion. However, Leonardo executive said the figures floated did not reflect proceeds from existing deals to buy DRS’ satellite communications company GES or its stake in Sonar Company AAC.

Leonardo explained that DRS will become listed on the Nasdaq Stock Exchanges and Tel Aviv Stock Exchanges upon the completion of the transaction. It is anticipated to close in the fourth-quarter of 2018. Leonardo expects the impact of the transaction on Leonardo’s guidance for 2022.

Leonardo delayed an initial public offering of a minority interest in DRS last fiscal year due to uncertainty about U.S. defense spending and concerns from investors regarding rising interest rates.

Lynn stated that he didn’t anticipate any regulatory obstacles for the agreement and was optimistic the U.S. would accept it.

($1 = 0.9467 euros)