The Vitrociset M&A battle:  another sign for tough future negotiations over military shipyard consolidation in Europe

Vitrociset, a $187 million turnover Italian company specialized in technological products, systems and services for the defense, security, space and transport markets symbolizes the rivalry and the complexity that prevails in the shipbuilding industry ahead of some expected strategic big moves.

Back in July 2018, the Italian companies Fincantieri and MERMEC announced they would be acquiring 98.54% of Vitrociset. In details, Fincantieri would take control of the activity related to the military area, while MERMEC would control the civilian activities. At that time, the deal was supposed to close quickly. However, Leonardo, which owns a 1.46% stake in the company, has decided to exercise its pre-emptive right to block the transaction and has offered to buy the entire share capital of Vitrociset, therefore rendering Fincantieri’s bid. The latter, quickly announced that they would drop out of the bid.

Behind this ownership fight, both Fincantieri and Leonardo are anticipating their potential integration with French shipyard company Naval Group and are therefore, trying to obtain the best positioning. Indeed, Vitrociset, which provides solutions on automation, command and control, and simulation, could strengthen Fincantieri’s position in the discussions with Naval Group. Leonardo already faces Thales competition, and could therefore, be isolated against Fincantieri and Vitrociset solutions. Besides that, Leonardo fears that without Vitrociset in its scope, the alliance between Naval Group and Fincantieri could put some of its strategic sectors at risk, especially as Thales, a shareholder of Naval Group, already provides many systems to the French shipyard company.

To calm the situation, Italy’s Defense Minister Elisabetta Trenta stepped into the matter and eased the situation between the two leaders of Fincantieri and Leonardo. Tensions remain high as expectations about a potential teaming with Naval Group are elevated. Both companies are committed to protecting their interests.

STX France stuck between Fincantieri and the French State ownership

Fincantieri recently announced it will be acquiring a 50% stake in the French shipyard company STX France (nowadays Chantiers de l’Atlantique), a stake currently held by the French State. The operation is valued at €59.7 million. According to the French Government Shareholding Agency (APE), the French State will keep a 34.34% stake (through APE) in the company, but will lend for 12 years, a 1% stake to Fincantieri, which will therefore hold a 51% stake. This loaned 1% stake is a strategic move as it gives Fincantieri the majority holding. The Italian company will be allowed to buy the stake after 12 years only if all the engagements are respected. Politics welcome this outcome as the agreement was hard to find as it is supposed to lay the foundations for a European shipyard giant.

Disagreements over the shareholders’ majority

In 2017, the French government and the Italian company started the negotiations on a bad foot. Fincantieri was looking for a majority holding, while the French government was reluctant regarding this matter, and made clear that it was unconceivable it was going to let Fincantieri be the majority shareholder. Fincantieri has always defended itself, arguing that the group was complying with French requirements.

The new French government welcomes new measures regarding STX France (Chantiers de l’Atlantique)

Once elected, the French President Macron decided to renegotiate the agreement and the conditions with Fincantieri. Indeed, many fears have emerged since: technological leakage, benefiting foreign shipyards, a turnaround in passenger ships, disappearing suppliers, knowledge and an industrial cluster in France. While trying to reduce Fincantieri’s potential stake in STX France (below 50%), President Macron insisted on his willingness to have Fincantieri as a shareholder, and to develop cooperation, even on the military side. As a consequence, the French State proposed to Fincantieri to own 50% of STX France, as well as its operational control. Moreover, rather than the Fondazione CR, the French President suggested that MSC and RCCL could each own 10% of the capital.

Some hope has emerged in the military domain as Naval Group is expected to enter STX France’s capital. STX France still has some military activity and is the only and last shipyard in France able to produce massive ships. France already proposed to Italy some cooperation regarding the new programme over logistics ships. This is the reason why the French government proposed the creation of an “Airbus of the Sea”. However, the partnership has been postponed in September 2017.

The concluded terms of the agreement

As a final peregrination, the French and the Italians have finally agreed over a 1% stake that will be loaned to Fincantieri, and, associated with conditions, can eventually, be bought by the Italian company in 12 years’ time. The French State will control and make sure the conditions are being respected after 2, 5, 8 and 12 years. If not respected, the lending agreement could be terminated at each period.

These conditions will include: employment (no reduction of employment in the 5 years following the transaction), diversification, investments (no un-equal treatment of STX France within the Fincantieri Group), and maintaining the know-how in France (no transfer of know-how outside Europe).

If Fincantieri does not respect these conditions, the 1% loaned stake will return to the French State. Moreover, the French State will retain the possibility to nationalize Fincantieri, the remaining 50% stake in case of divestment from the latter. However, this point remains unclear and raises some questions.

Despite this agreement, some remain reluctant as they fear that Fincantieri might be tempted to favor its own shipyards. On the other hand, some fear that Fincantieri’s recent partnership with the Chinese company China State Shipbuilding Corporation (CSSC) could spur a technological leakage.

A fractured governance of the Chantiers de l’Atlantique (ex-STX France)

Naval Group is expected to take at least, a 10% stake. But its board has allowed it to take a 15% stake. Everything will depend on employee stakes in the capital, something that the government is pushing for. In any case, the company governance remains a tricky point. Should the final agreement be accepted by the European authorities, Fincantieri would have four seats on the board, while two seats will go to the French State. Finally, Naval Group and Chantiers de l’Atlantique employees would each get one seat.

Fincantieri’s decision: a troubling move for stakeholders

Fincantieri’s operations allow after several misses, to buy an historical competitor. Above all, it allows Fincantieri to buy STX France’s massive dry dock, solving therefore Fincantieri problems when it comes to the construction of large ships.

This operation, however does not please everybody. The German shipyards company Meyer Werft said that this merge, in which public actors will take place, will be done to the detriment of private shipyards. Besides that, Meyer Werft condemned Fincantieri’s agreement with the Chinese, saying that it will harm European shipyards.

In France, unions were already reluctant to let Fincantieri buy STX France’s capabilities. Now, it seems that even Naval Group’s unions are beginning to worry about this alliance. Several actions in that sense have been implemented.

Military shipyards consolidation remains unclear

Moreover, some suspect Naval Group is playing an unclear role: if the merger or cooperation between Naval Group and Fincantieri has been postponed, discussions are still on track. However, some disagreements are persitant, notably concerning cross-shareholding. Indeed, the French State is reluctant to reduce its ownership of Naval Group below 65%. But some suggest that if the French State enters into Fincantieri capital, the latter should be allowed to become a shareholder of Naval Group.

Furthermore, the questions over radars is a at high risk as Thales and Leonardo are competitors. However, Fincantieri works almost exclusively with Leonardo and in case of Chantier de l’Atlantique acquisition, would therefore promote Leonardo. But sensors are a strategic matter and many voices have raised that question, including among the French Armed Forces.

The situation is tense between Naval Group and Thales as Naval Group launched a JV with Leonardo over integration and sales of torpedoes. For its part, Thales launched a JV (supposed to supply the first one) with the Italian company in the domain of acoustics. However, Thales and Leonardo face a dilemma as both are competitors in a wide scope of products. Hence, the fear, in case of failure, to see Leonardo step on Thales’ toes (notably Naval Group) and trying to eject Thales as supplier in case of a Fincantieri/Naval Group deal.

Besides that, Naval Group, which supported Fincantieri’s acquisition of STX France, thought it was a way to end STX France’s military activity on Lorient site (light frigates, corvettes, OPV…).

The French government made it clear that is was unconceivable to let some of Naval Group activities, especially those related to nuclear technologies, go under foreign flags. In the area of submarines, in particular, Fincantieri recently reacted to the rumors concerning TKMS, saying that it could be interested in buying the German company’s submarines activity. Indeed, it appears that ThyssenKrupp could restructure its portfolio and therefore sell its TKMS branches.

Are the Italian elections and fraud suspicion the final nail in the COFFIN?

In July 2018, a report from the French competitive intelligence company ADIT painted a disturbing picture for Fincantieri. In details, it warned that Fincantieri might have used “old style negotiations” to win a €5 billion contract in Qatar. Besides that, ADIT said that the Italian shipmaker is involved in many court cases, as well as some implying ties with the mafia. ADIT feels that the Italian company could be aware of these risks, which, is underpinned by the company provisioning policy (chart below). However, when compared to new orders, Fincantieri’s allocation to provisions is in fact decreasing since a high in 2010.

However, the report noted that the company does not take the matter seriously enough and that the compliance policy was too weak. This report seems to be well spread among French officials and even the French DGSE (General direction of French exterior security) kept an eye on Fincantieri negotiation. Indeed, some fears that an equity partnership could be harmful for Naval Group.

All theses accusations have been rebuted by Fincantieri.

On the other hand, while the political turmoil over migrants has put a damper on the French-Italian relationship, Bruno Lemaire, France’s Minister of Economy and Finance, recently tried to ease the situation, ensuring that the industrial cooperation would take place. In the meantime, the European authority’s approbation is expected to be received by end of 2018/early 2019, the French government used its pre-emptive right on July 1st to acquire the 66.66% of STX France, currently held by the South Korean STX Offshore & Shipbuilding.

It has to be noted, that STX France recently changed its name for Chantiers de l’Atlantique.


Written by Benjamin Voisin (Finance Analyst) for OIDA Strategic Intelligence


On July 19, Fincantieri has been awarded a €74 million contract by the Italian Ministry of Defense to start the adaptative works for the use of the F-35B STOVL (Short Take-Off/Vertical Landing) Lightning II aircraft onboard the STOVL (Short Take Off and Vertical Landing) aircraft carrier CV Cavour. Works will end in late 2019. The first landing of the aircraft carrier is planned for 2020.

Italy has planned to acquire in total 90 F-35 aircraft (60 F-35A and 30 F-35B). Concerning the Marina Militare, the F-35B aircrafts aim at replacing aging AV8B+ Harriers.

The Cavour’s hangar capacity is for 8 AV-8B+/ F-35B Joint Strike Fighter or 12 EH-101/NH90.

This contract comes shortly after Italy received its first F-35B in late January 2018. The Italian F-35B, which is for the Italian Navy, is the first F-35B assembled aircraft outside the United States within the Cameri site (Novara, Italy). Since December 2015, nine F-35A have already been made and delivered for the Italian Air Force. Four of them are based for training purposes in the US Air Force Base of Luke (Arizona) and the remaining five are operated on the Italian Air Force base of Amendola.

The Italian F-35B has since been tested in the USA at the Naval Air Station Patuxent River (Maryland) for the Electromagnetic Environmental Effects certification (electromagnetic compatibility), and then being used in the US Marine Corps Air Station Beaufort (South Carolina) where the Pilot Training Center for the USMC is. The next two Italian F-35B aircrafts will join the first aircraft later on.

On board the CV Cavour, F-35B aircrafts will be in charge of doing the following missions:

  • AI (Air Interdiction),
  • APCLO (Air Power Contribution to Land Operations),
  • APCMO (Air Power Contribution to Maritime Operations),
  • CAS (Close Air Support),
  • COMAO (Composite Air Operations)
  • DCA (Defensive Counter Air),
  • OCA (Offensive Counter Air).

By 2023, Italian F-35B aircrafts will have progressively replaced AV8B+ Harriers on board the Cavour aircraft carrier.

The FACO (Final Assembly and Checkout), operated by Leonardo, is responsible for the manufacturing of Italian F-35 aircrafts. Besides Italian orders, the facility will be also in charge of the manufacturing of 29 F-35A for the Royal Netherlands Air Force. The production process for the Netherlands has already started.

The partnership between Lockheed Martin and Leonardo is at high stake for Italy: 27 Italian companies have been directly contracted by Lockheed Martin, BAE Systems and Northrop Grumman while more than 70 others companies are sub-suppliers. In addition, Leonardo is responsible for the wings manufacturing for F-35 partner and Foreign Military Sales nations. The FACO in Italy will be, as well, the European Maintenance, Repair, Overhaul and Upgrade Center of Excellence.


Written by Benjamin Voisin (Finance Analyst) for OIDA Strategic Intelligence


Tecnam, based in Capua, Italy, is the world’s second-largest General Aviation aircraft manufacturer and has been in business since 1948 offering more than 33 models and variants of single and twin engine, and Light Sport Aircraft (LSA). The company is well known worldwide and recently announced that they are establishing a corporate subsidiary in Australia. In March 2017, Tecnam lost their founder, president, chief preliminary design officer, and indeed an aviation pioneer Luigi “Gino” Pascale, at the age of 93.

The two-seater Tecnam P92 has been the company’s most popular design with more than 2,500 taking to the skies worldwide. In the first three quarters of 2017, Tecnam shipped 132 aircraft worth $31.5 million, with light sport models and the P2006T being the popular choice. In October and November 2017, Tecnam U.S. completed delivery of three out of 30 P2006T twin-engine aircraft with Special Mission Platform (SMP) configuration. The aircraft are part of an order (24 month delivery contract) for a geospatial data acquisition company that is modernizing its fleet. There is an option for 24 additional P2006T (SMP) following delivery of the first 30. Tecnam CEO Paolo Pascale, stated that the P2006T is the right platform to bring geospatial data sensing up to date.

The P2006T is also assisting NASA in an experimental electric plane concept – the X-57. The X-57 is a modified P2006T powered by an electric propulsion system. An existing aircraft design is used so that data from the baseline model, powered by traditional combustion engines, can be compared to data produced by the same model powered by electric propulsion. NASA engineers are then able to measure precisely the increase in efficiency through the electric system.

In April 2017, Tecnam announced upgrades to three of its aircraft – the P2010, P2006T Twin, and P2002 Sierra. The P2010 will now come with a Lycoming IO-390 engine and a VP prop as well as Automated Dependent Surveillance-Broadcast (ADS-B) Out and the G1000 Nxi flight deck (optional). As of 2015, only ADS-B Out is mandated by the FAA, which states that all aircraft operating in designated airspace must be equipped with ADS-B Out by January 1, 2020. The P2006T twin, the company’s top-selling aircraft, now comes with the Garmin G1000 Nxi next-generation flight deck, ADS-B Out, and a new seat design. The latest version of the P2002 LSA will feature the Rotax 915 iS/iSC 135-HP engine, which offers full take-off power of up to at least 15,000 feet and a service ceiling of 23,000 feet.

Other deliveries on the cards are the Tecnam P2010 for the Government Flying Training School (GFTS) in Jakkur, Bangalore, India, which is set to arrive in mid-January 2018. The P2010 is a four-seat, single engine light aircraft of mixed metal and carbon-fibre construction with a range of 600 nautical miles and a cruising speed of around 250km/h. In September 2017, Cape Air, based in Massachusetts, U.S., and Tecnam announced an agreement for the delivery of the first 20 out of an order of 100 P2012 Traveller aircraft. The P2012 Travellers are expected to enter service in early 2019 and will replace the Cessna 402. The P2012 Traveller was Luigi Pascale’s final design.




Written by Sylvia Caravotas (Satovarac Consulting) for OIDA




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