CI VIEW: Leonardo Chairman De Gennaro opens door for BAE Systems merger

MILAN (BBN) — Leonardo SpA (BIT:LDO) Chairman Gianni de Gennaro said a merger with listed UK defense giant BAE Systems (LSE:BA) “could be an idea” at a recent company event in Milan.

[Leonardo (BIT:LDO) Chairman Gianni de Gennaro tells Capitol Intelligence Group using CI Glass that merger with BAE Systems (LSE:BA) “could be an idea” during Leonardo Innovation awards with Leonardo CEO Alessandro Profumo at the Museo Leonardo Da Vinci in Milan. November 20, 2017]

De Gennaro’s openness to pursuing a full merger with BAE Systems marks a strategic departure for the listed Italian defense and civil aviation group and indicates the smaller national defense champion is now seeking a merger with a major European defense contractor.

BAE Systems, under pressure to find a strong European defense partner with the looming exit of the United Kingdom out of the EU on March 2019, has historic and close cultural ties with Rome-based Leonardo (formerly Finmeccanica). 

BAE Systems spokesman Rowan Pearman declined to  comment on any possible merger with Leonardo. Under the UK Takeover Panel code, a company cannot pursue a merger for at least six months following a denial of interest.

A merger between Leonardo and BAE Systems would allow the two companies to dramatically increase its bargaining position by combining their respective 25% and 37.5% stakes in the  European missile consortium MBDA and significantly increase the companies footprint in the United States.

[Leonardo SpA Chief Executive Officer Alessandro Profumo speaks to Capitol Intelligence/CI MENA using CI Glass ahead of receiving award from the National Italian American Foundation at the NIAF Annual Gala in Washington DC. November 4, 2017]

While BAE Systems has aggressively expanded its operations in the United States, Leonardo has only just begun to become more visible in the US markets following the embarrassing cancellation of the Presidential Marine One helicopter contract and a series of money laundering and corruption scandals surrounding the then Finmeccanica group.

In fact, the Italian government appointed Italy’s former top police official and former Milan Perfect De Gennaro to clean-up Leonardo/Finmeccanica and the eventual appointment of Alessandro Profumo, the former head of Unicredit, as Leonardo’s Chief Executive Officer.

Profumo, who declined to comment on a potential BAE Systems merger, is one of Europe’s foremost M&A practitioners starting with the mega-merger between Unicredit and Rome’s troubled Capitalia in 2007.

The combined Leonardo-BAE Systems would also offset BAE Systems current focus on military contracts by bringing miuch sought after dual use civilian activities such as Leonardo’s AgustaWestland helicopter business and Alenia (ATR, Airbus and Boeing 787) and avionics business.

Lombardy Governor Roberto Maroni told Capitol Intelligence that would welcome a merger of Leonardo-BAE Systems if it further reinforced Italy’s aviation corridor in the Varese area of northern Italy.

[Lombardy Governor Roberto Maroni speaks to Capitol Intelligence/CI MENA using CI Glass on regional autonomy with Emilia Romagna Government Assessor Emma Petiti in Italy at Round Table on Autonomy at the Lombardy Regional Government building in Milan, Italy. November 11, 2017]

Maroni, who is the highest elected official of the center-right Northern/Lombard League party, will be one of the kingmakers in Italy’s upcoming general elections next spring.

The merger between BAE Systems and Leonardo could lead to the relocation of the companies Arlington, Virginia-based US subsidiaries BAE Systems Inc and DRS Technologies to a new headquarters in a Trump administration/GOP friendly state and improved management under a new US government mandated Special Security System.

Industry insiders said that they envision of a transaction where BAE Systems Chairman Sir Roger Carr would remain Chairman of the combined BAE Systems/Leonardo and Leonardo’s CEO Alessandro Profumo would replace BAE Systems CEO Charles Woodburn as the merged group Chief Executive.

By PK Semler in Milan, Italy and Washington, DC.

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