Leonardo Spa · MIL:LDO
Leonardo Spa — Finmeccanica — Merger or Acquisition (July 2008)
55 slides from Leonardo Spa's merger presentation, Jul 31, 2008
Slide 1: Update on the acquisition of DRS Technologies
Finmeccanica Update on the acquisition of DRS Technologies Pier Francesco Guarguaglini Finmeccanica Chairman and CEO Mark S. Newman DRS Technologies Chairman, President and CEO Alessandro Pansa Finmeccanica Co-General Manager / CFO London, 31 July 2008
Slide 2: Important information
Important information This communication is for information purposes only and is not, and does not form a part of, an offer for sale of any securities or a solicitation of an offer to purchase or subscribe for any securities in any jurisdiction. Securities may not be offered or sold in the United St
Slide 3: Agenda
Agenda 1. 1. Pier Pier Francesco Francesco Guarguaglini: Guarguaglini: 9 Strategic 9 Strategic Rationale Rationale of of the the Acquisition Acquisition 2. 2. Alessandro Alessandro Pansa: Pansa: 9 Acquisition 9 Acquisition Financials Financials and and Finmeccanica Finmeccanica & & DRS DRS Combined
Slide 4: Strategic Rationale of the Acquisition
Pier Francesco Guarguaglini Finmeccanica Chairman and CEO Strategic Rationale of the Acquisition 4
Slide 5: Solid local footprint of our Defence Electronics in US
Solid local footprint of our Defence Electronics in US… Finmeccanica three pillars: Aeronautics Helicopters Defense & Security Electronics C27J US 101 TOMORROW in USA TODAY in USA Strengthen our position Finmeccanica presence is as platform supplier linked to two large contracts for the supply of US
Slide 6: Why DRS Technologies?
Why DRS Technologies? 9 Strong defence electronics technology, together with superior performance 9 Strong management team remaining and committed to further grow the business 9 Direct access and solid relationship with the US military customer, especially with the Army 6
Slide 7: Good Fit and Minimal Overlap
Good Fit and Minimal Overlap Aerospace, Defense and Security Wider state of art portfolio covering radar, E/O (sensor, RSTA sights, targeting and RSTA countermeasures) Airborne surveillance & patrolling, tactical land and armament C4I systems, naval armament and C4I combat systems, security Terminal
Slide 8: DRS Technologies: The Right Target for Finmeccanica
DRS Technologies: The Right Target for Finmeccanica 2007 Revenues ($mln) in Defence Electronics* LOCKHEED MARTIN 21,300 NORTHROP GRUMMAN 19,300 RAYTHEON 16,500 THALES 13,200 L-3 COMMS 13,120 BAE SYSTEMS 9,590 GENERAL DYNAMICS 9,400 FINMECCANICA+DRS Tech. 8,060 BOEING 5,860 ROCKWELL COLLINS 4,410 ITT
Slide 9: Improved positioning in Defence Electronics
Improved positioning in Defence Electronics (one of the 3 Strategic pillars) Transport 10% Aeronautics Energy 8% 17% Space 6% $18.8bn Helicopters + $3.3bn Defence 22% Transport 9% = Defence Systems Aeronautics Defence Electr Energy Electronics 8% 15% 29% 7% 100% Space 5% Helicopters Defence 19% Syst
Slide 10: Combining the Strengths of Finmeccanica and DRS Technologies
Combining the Strengths of … …Finmeccanica 9 Leading market position and expanded global footprint, focusing on high-growth markets 9 Balanced portfolio of products and solutions that limits risk exposure 9 High revenue visibility supported by ~3 year and growing backlog 9 Increasing profitability t
Slide 11: Acquisition Financials and Combined Opportunities
Alessandro Pansa Finmeccanica Co-General Manager / CFO Acquisition Financials and Finmeccanica & DRS Combined Opportunities 11
Slide 12: DRS Transaction
DRS Transaction ¾ Merger agreement under which Finmeccanica will acquire DRS Technologies for US$81 per share in cash for approximate total consideration of $5.2B/€3.4B (including transaction costs/adjustments) Purchase Price per Share $ 81 Fully Diluted Shares (M) 48,623 Transaction in $ (M) in € @
Slide 13: Major Events from Signing
Major Events from Signing Proxy Statement Ppreliminary proxy statement has been filed by DRS with SEC on June 14 and further info has been provided to SEC recently. We expect definitive proxy will be sent to the DRS shareholders shortly. Exon-Florio notice The prefiling Exon-Florio notice was filed
Slide 14: Financing on Track
Financing on Track Syndicated 9 EUR 3.2 billion syndicated loan completed successfully on STEP 1 14 July Loan Bridge Loan 9 Banks offered more than 2x the original amount, confirming Facilities their belief in the sustainability of our growth plan 9 Finmeccanica Board of Directors agreed, on 26 June
Slide 15: Increased Weight and Enhanced Performance of Strategic Pillars
Increased Weight and Enhanced Performance of Strategic Pillars… • DRS acquisition enhances Finmeccanica’s presence in its core three pillars in terms of revenues and assets • Defence Electronics, post acquisition, increases its weight to 35% of the Group’s total assets • Weight of civil engineering
Slide 16: WACC + hurdle rate of about 3% for all investments
WACC + hurdle rate of about 3% for all investments… We expect the DRS acquisition to fully meet our investment Internal Rate of Return (IRR) target of WACC + 3% hurdle rate even with no revenue benefits from the integration Assuming different hypothesis 1 of revenue and EBITA2 benefits from the
Slide 17: Notional / Illustrative 2009 Impact on Finmeccanica
Notional / Illustrative 2009 Impact on Finmeccanica Finmeccanica Finmeccanica DRS DRS Technologies Technologies Illustrative Illustrative Post-Deal Post-Deal Guidance Guidance Consensus* Consensus* Finmeccanica Finmeccanica Stand Stand alone alone (a) (a) (calendarised figures) (b) (calendarised fig
Slide 18: Combined Positioning
Combined Positioning Finmeccanica and DRS combined creates a leading player in the Defence & Security business, leveraging on: 9 Outstanding well balanced geographic footprint through MARKET Finmeccanica focused in Europe and DRS in US, with a common strategy to grow further in the rest of the world
Slide 19: Products & Technology Strategic Fit
Products & Technology Strategic Fit Defence Electronics & Security (Combined 2007 Revenues € 6.1 B) Wider state of art complementary portfolio covering: • Border and maritime security solutions • Electro-optics (airborne, land, naval, space) • Surveillance & Patrolling (manned and unmmaned) • Tactic
Slide 20: Potential Cost Benefits
Potential Cost Benefits • Combined R&D benefits – Electro-Optics – NEC programs – Homeland Security – Comms • Streamlining of some product lines • Combined purchasing power of subsystems, materials and components • Streamlining of some central costs 20
Slide 21: Integrated and structural approach to extract combined benefits
Integrated and structural approach to extract combined benefits 9 Work organisation set up 9 Preliminary joint analysis carried out in order to identify combined opportunities 9 More detailed activities will follow, starting immediately after Antitrust clearance, through the approach below Steering
Slide 22: DRS Growth Potential
Mark S. Newman DRS Technologies Chairman, President and CEO DRS Growth Potential 22
Slide 23: Safe Harbor
Safe Harbor SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995: This presentation contains forward-looking statements, within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that a
Slide 24: Positioned to Continue Strong Financial Performance
Positioned to Continue Strong Financial Performance ● Leadership position in our key markets ● High organic revenue growth rate ● Strong operating margins ● Excellent free cash flow conversion rate ● Solid book-to-bill ratio (FY08: 1.2 to 1) 24
Slide 25: Market Leader in Key Technology Areas Tied to Defense Priorities
Market Leader in Key Technology Areas Tied to Defense Priorities ● Infrared technology ● Persistent surveillance ● Battle management ● Power technologies ● Satellite networks and communications infrastructure ● Troop sustainment and support 25
Slide 26: Strong New Order Flow Drives Future Revenue Growth
Strong New Order Flow Drives Future Revenue Growth 3,862 Revenue Net Bookings Funded Backlog 3,607 3,489 3,295 3,038 2,821 2,396 2,173 1,736 1,433 1,196 1,309 1,315 987 1,053 FY04 FY05 FY06 FY07 FY08 Bookings/Revenue 1.1x 1.1x 1.3x 1.2x 1.2x 26
Slide 27: U.S. DoD Budget
U.S. DoD Budget ($ US Billions) $750 $700 $707.74 Regular Appropriations Supplementals $665.81 $650 $600 $192.33 $550 $186.3 $500 $450 $515.42 $479.5 $400 $350 FY08-FY09 Increase $300 Supplementals +3.2% $250 Baseline +7.5% $200 Total +6.3% $150 $100 $50 $0 FY04 FY05 FY06 FY07 FY08 FY09* * President
Slide 28: Global U.S. Commitments Require Ongoing Military Support
Global U.S. Commitments Require Ongoing Military Support Europe Middle East South Korea Preserving Coalitions Border Defense Nation Defense U.S. Homeland Security Iraq Balkans Combat Operations Japan Peacekeeping Preserving Coalitions Afghanistan Combat Operations Guantanamo Sinai Operations Philipp
Slide 29: Targeting the Sweet Spot of the DoD Budget
Targeting the “Sweet Spot” of the DoD Budget $US Millions All Other Procurement O&M RDTE $500.000 $400.000 $300.000 $200.000 $100.000 $0 2004 2005 2006 2007 2008E 2009E 5-Year CAGR (2004-2009E) Procurement 6.5% RDTE 4.4% O&M 7.0% Total Baseline Budget 6.5% 29
Slide 30: US Plans to Increase Combat Capability
US Plans to Increase Combat Capability Current Baseline FY2012 Goal Army Army 42 Brigade Combat Teams 48 Brigade Combat Teams ● 482,400 Soldiers ● 547,400 Soldiers ● 1 year Home Station for ● 2 years Home Station for 1 year Deployed 1 year Deployed Marine Corps Marine Corps ● 175,000 Marines ● 202,0
Slide 31: Large Footprint on Key Platforms: Vehicle Upgrade Requirements
Large Footprint on Key Platforms: Vehicle Upgrade Requirements Provide Growth Opportunities TOW Visual Modules Horizontal Technology Integration (HTI) Improved Bradley Acquisition Subsystem (IBAS) Driver Vision Enhancers Force XX1 Battle Command, Brigade & Below Direct Support (FBCB2) Electrical Sys
Slide 32: Ground Platforms Today Support Demand for DRS Products
Ground Platforms Today Support Demand for DRS Products 220,000 220,000 68,000 150,000 2008 100,000 ~320,000 Vehicles 50,000 ~ 14,000 ~ 10,000 8,000 4,300 6,000 4,000 2,700 4,000 1,900 0 1,600 1,100 600 752 450 2,000 0 600 0 10 0 FCS M1A1 BFV BFV Stryker M113 M109A6 AAV/ LAV HMMWV JLTV M1A2 A3 CBT AS
Slide 33: Ground Platforms Tomorrow – Even Greater Demand for DRS Products
Ground Platforms Tomorrow – Even Greater Demand for DRS Products 124,000 Addressable market for ground vehicle fleet expansion FY08-20: $4-$5 billion 120,000 150,000 60,000 100,000 2020 23,000 40,000 50,000 ~400,000 Vehicles ~ ~ 12,000 10,000 8,000 4,500 6,000 2,400 2,400 4,000 2,100 1,980 1,900 1,0
Slide 34: Large Footprint on Key Platforms Supports Follow-on Contracts
Large Footprint on Key Platforms Supports Follow-on Contracts Family of Q-70 Consoles, CEDS Displays SPS-67 Radar, MK 15 Phalanx C-Band Active Array Close-in Weapon Radar (CBAAR) System (CIWS) Thermal Imagers Fiber Optic Networks Vertical Launch System Controllers Marine Fan Coils Power Conversion,
Slide 35: DRS Shipset Values
DRS Shipset Values DDG-1000 CVN-78 LM LCS SSN-774 DDG-51 $62 M/ship $33 M/ship $10.5 M/ship $17.6 M/ship $16 M/ship ● Electrical systems ● Electrical ● MPCMS ● Control panels ● Controllers ● Turbine packaging distribution ● Turbine packaging ● Detectors ● Interior comms ● Displays ● Turbine design ●
Slide 36: Navy Ship Building Plan Provides Future Opportunities
Navy Ship Building Plan Provides Future Opportunities Planned New Construction of 47 Ships & Submarines 14 FY09-13 12 12 12 10 8 8 8 7 6 4 4 2 0 2008* 2009 2010 2011 2012 2013 * President’s FY09 budget request 36
Slide 37: Opportunities for International Expansion in Defense & Border Security
Opportunities for International Expansion in Defense & Border Security U.K. Ground vehicle & Israel, Egypt, South Korea naval equipment Jordan, Saudi Border Defense U.S. & Canada Arabia, UAE, National Defense & Tajikistan Eastern Europe National & Homeland Security Japan National & Border Border Def
Slide 38: Large Global Homeland Defense Addressable Market
Large Global Homeland Defense Addressable Market* $ US Billions $160 $140 5-year CAGR (’08-’13): 12% $146 $133 $120 $119 $100 $107 $95 $80 $82 $60 $40 $20 $0 2008 2009 2010 2011 2012 2013 *DRS Technologies estimates 38
Slide 39: Strong Potential to Increase Exports
Strong Potential to Increase Exports DRS’s strategic goal to grow exports can be realized through Finmeccanica’s international customer network Land Sea Air ● Radars ● Air cargo transporters ● Radars ● Avionics – flight/mission ● Electronic warfare ● Decontamination ● C2 advanced displays recorders
Slide 40: Strong Foundation for Continued Growth in the US and Abroad
Strong Foundation for Continued Growth in the US and Abroad ● Growing demand for our products and services ● Alignment with military modernization and transformation ● Long-term contracts in backlog ● Critical scale enabling cross-market opportunities ● Broad diversification of customers and program
Slide 41: Combined identified opportunities
Combined identified opportunities Homeland Security ¾ The initial assessment brought to the identification of significant market opportunities and benefits to positioning in some key national programmes 9 Jordan Border Control 9 Greek Port Security (~ € 400mln), 9 Integrated Border Management in Tur
Slide 42: Additional combined opportunities under scrutiny
Additional combined opportunities under scrutiny There are additional opportunities which are currently under evaluation in terms of potential benefits to the overall business Homeland Security 9 SBINET (Great Lakes) 9 Egypt Border Control 9 International FMF & FMS programmes (~ €650mln) 9 Dept. of
Slide 43: Concluding Remarks
Pier Francesco Guarguaglini Finmeccanica Chairman and CEO Concluding Remarks 43
Slide 44: Expected Combined Benefits supported by sizable markets (1/2)
Expected Combined Benefits supported by sizable markets (1/2) HOMELAND SECURITY C4I SYSTEMS PORT SECURITY VTMS SOLDIERS COMMUNICATIONS LAW ENFORCEMENT BORDER CONTROL C2 & DATA FUSION FBCB2 SBINET Addressable Market for Border, Territory and Addressable Market for Command & Critical Infrastructure Pr
Slide 45: Expected Combined Benefits supported by sizable markets (2/2)
Expected Combined Benefits supported by sizable markets (2/2) GLOBAL SUSTAINMENT & SITUATIONAL AWARENESS: TECHNICAL LOGISTICS ELECTRO-OPTICS NAVAL C-130 AIRBORNE Fuel and Water Mobile Sustainment Distributions Systems LAND Addressable Market for Logistic and Services Addressable Market for Airborne,
Slide 46: Strategic Geographic Fit To Grow Market Share
Strategic Geographic Fit To Grow Market Share 2007 Revenues Canada 2% UK 1% Worldwide Market USA € 2.1 B 2007-2012 CAGR: ~ 6% 2012E Target Revenues* 97% > € 130 B (COMBINED) RoW + € 100 B DEFENCE 21% ELECTRONICS DEFENCE ELECTRONICS ~ € 9.5 B € 6.1 B HOMELAND USA HOMELAND SECURITY 40% Europe SECURITY
Slide 47: DRS A Winning Step Ahead for Finmeccanica
DRS A Winning Step Ahead for Finmeccanica Preliminary contacts over the last few months allowed to identify a broad range of opportunities 9 Some concrete opportunities of working together already identified i.e. US Postal Service (~ € 200mln) , Jordan Border Control, Greek Port Security (~ € 400mln
Slide 48: Further benefits for Finmeccanica from cooperation
Further benefits for Finmeccanica will be achieved thanks to cooperation on its platform business and improved access to US customers for its broader activities 9 Very good feeling fostering productive cooperation at commercial and industrial level stemming from initial operational contacts 9 Very p
Slide 49: Appendix
ay “7 FINMECCANICA APPENDIX 49
Slide 50: The Master Schedule to Steering Committee and Working Groups
The Master Schedule to Steering Committee and Working Groups Time Now By mid ‘09 Phase 0 • Due Diligence 9 Phase 1 • Mgmt presentations 9 • Eurosatory / Farnborough 1.1 • Appoint Steering Committee and Working familiarization meetings 9 Groups (WGs) Members 9 • Terms of Reference to WGs and Kick- of
Slide 51: Methodology for Phases
Methodology for Phases 1 and 2 “As is” “As is” Phase 1 Markets Markets Products Initial “synergy pack” Products Technology assessed, quantified Technology Competitors Competitors and time allocated Opportunity Matrix Markets Products Technology Alliances Phase 2 Combined integrated business assessme
Slide 52: Finmeccanica Defence Electronics Capabilities Already Sold to US Customers
Finmeccanica World Class Defence Electronics Capabilities Already being Sold to US Customers 9 DIRCM (Directional Infrared Countermeasure Systems- self protection) in collaboration with Northrop Grumman 9Javelin – guided missile system. Collaboration program with Lockheed Martin and Raytheon 9 Seasp
Slide 53: Senior Term Loan Facilities
Senior Term Loan Facilities 9A Senior Term Loan Facility successfully syndicated and closed on 14 July 2008 9Domestic and international banks together offered around EUR 7 billion, more than 2x the original amount., thereby reducing the amounts originally allotted to each bank. 9 40 banks took part
Slide 54: Proven Track Record of Growth for DRS
Proven Track Record of Growth for DRS $390 Operating Income Amortization Total Revenues % Organic Revenues 16.8% $302 13.0% 13.9% $3,295 11.5% $2,821 9.0% $205 $150 $1,736 $109 $1,309 $987 FY04 FY05 FY06 FY07 FY08 FY04 FY05 FY06 FY07 FY08 5-Year Revenue CAGR 37% 5-Year EBITA CAGR 42% $4.00 $165.8 $2
Slide 55: Investor Contacts
Investor Contacts Finmeccanica DRS Technologies investor_relations@finmeccanica.com Website: http://www.drs.com Website: http://www.finmeccanica.com John D. Stewart Patricia M. Williamson VP Investor Relations VP Investor Relations +39 06 32473.290 +1 973-898-6025 john.stewart@finmeccanica.com p.wil