CEO Dispute

Tank Merger Runs onto Rocky Ground

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  • Why it matters

    Why it matters

    A last-minute personnel dispute threatens to derail the merger of two European tank and cannon makers that is supposed to compete with General Dynamics and BAE Systems.

  • Facts

    Facts

    • French state-owned Nexter and German family-owned Krauss-Maffei Wegmann agreed to merge in July.
    • KMW/Nexter would have 6,000 employees and turnover of €1.8 billion, or $2 billion.
    • KMW makes tanks with treads and Nexter specializes in wheeled armored vehicles; both make cannons.
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  • Audio

    Audio

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The biggest European defense deal in 15 years to create the continent’s largest land defense firm may fall apart.

In a surprise move, the French government Friday announced it had appointed a new chief executive, Stephane Mayer, to run state-owned tank maker Nexter. The move threatens Nexter’s proposed merger with German privately-owned peer Krauss-Maffei Wegmann, French business daily Les Echos reported.

KMW Chief Executive Frank Haun is wary of leading the merged firm with his new designated French counterpart, the paper reported, without citing sources. The German executive views Mr. Mayer, who will take over from Philippe Burtin on Tuesday, as a co-leader whom he does not know and could be a potential rival, the paper said.

Mr. Haun was originally scheduled to co-lead the firm with Mr. Burtin until the end of 2016.

The merger would be the biggest consolidation in the European defense industry since the founding of EADS/Airbus in July 2000.

Munich-based KMW and Nexter, headquartered in Versailles near Paris, were not immediately able to comment when contacted by Handelsblatt Global Edition.

The alliance between the two leading European tank and cannon makers would be the biggest in the European defense industry since the founding of EADS/Airbus aviation and aerospace venture in July 2000. It would strengthen the splintered E.U. defense sector to compete with global rivals such as Virginia-based General Dynamics and Britain’s BAE Systems, and create a firm with annual sales of €1.8 billion, or $2 billion.

Nexter produces rifles, rocket-launchers, heavy armored personnel carriers, the combat tank Leclerc and ammunition. It had sales of €1 billion, or $1.1 billion last year.

KMW is best-known for making the Leopard combat tank, but also builds the armored personnel carrier Puma and is involved in numerous other weapons systems, some of which are produced with Rheinmetall. KMW is owned by the German family Bode-Wegmann and had €747 million in revenue last year.

The French defense ministry, which owns 100 percent of Nexter, said in its statement the two defense companies would finalize their merger on Tuesday, but this seems uncertain amid the sudden nomination of Mr. Mayer.

 

Tanks-01 KMW Nexter Krauss

 

The owners of KMW are only willing to finalize the merger once the new firm’s executives have signed their contracts and set up a template to share responsibilities, the French paper said. Further delays could scupper the deal, because negotiations that dragged into 2016 may require an new due diligence review, the paper said.

The merger of two mainstays of the German and French economies has been an ambitious undertaking since the start, as it would create a European champion that can hold its own against U.S. competition in the global market, French Defense Minister Jean-Yves Le Drian said earlier this year.

Highlighting the difficulties of the merger, the firms had decided to base the new firm in “neutral” Netherlands.

The merger has drawn criticism since it was made public last year. Some feared KMW might use its French counterpart to evad strict German weapons export bans. The economics ministry must approve most foreign sales.

Some had also hoped that KMW would merge with German defense firm Rheinmetall to create a large national weapons producer.

 

Gilbert Kreijger is an editor at Handelsblatt Global Edition in Berlin, focusing on companies and markets. To contact the author: kreijger@handelsblatt.com

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