KMW-Nexter Merger

A Tank Deal Modeled on Airbus

Leopard 2 KMW PR
Will France get a say in deliveries of KMW's Leopard 2 tank in the future?
  • Why it matters

    Why it matters

    The merger faces difficult integration problems with the new company giving little away on how it intends to manage them.

  • Facts

    Facts

    • The merger is more of a marriage of convenience than anything else.
    • The two companies’ respective headquarters will continue to operate as usual for now.
    • The holding company will have a supervisory board consisting of seven members, with decisions reached by a simple majority.
  • Audio

    Audio

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When German tank manufacturer Krauss-Maffei Wegmann and its French counterpart Nexter sealed their merger on Wednesday, some observers felt reminded of the founding 16 years ago of EADS, the European Aeronautic Defence and Space Company, which has since been renamed Airbus Group.

Although the tank makers, with sales of €2 billion ($2.2 billion), are two sizes smaller than the current Airbus Group, with reveunes of €60 billion, the principle remains the same: The merger of the companies, like the consolidation of the aviation and space industry, is a marriage of convenience, with many strings attached.

It will take years before the defense contractors have been fully merged. As with the former EADS, the holding company will have two co-presidents, initially limited to a five-year term: Frank Haun, from KMW, and Philippe Burtin from Nexter. And because the two sides are still not entirely at ease with each other, they’ve decided to locate the new company’s headquarters in the “neutral” Netherlands.

The merger of two pearls of the German and French economies is an ambitious undertaking, as it creates a European champion that can hold its own against U.S. competition in the global market, French Defense Minister Jean-Yves Le Drian said on Wednesday.

For now, both companies will remain unaffected by the joint holding company in the Netherlands. Until further notice, their separate headquarters, one in Munich and one in Satory outside Paris, will continue to operate as usual.

The holding company will have a seven-member supervisory board, which reaches its decisions with a simple majority. “There is no option to block decisions,” an official in Paris said.

While the names of the two presidents are known, those of the remaining members have yet to be announced.

At Airbus, there were sharp disagreements between the Germans and the French.

As with the founding of EADS, which received a generous dowry consisting of lucrative orders for the Eurofighter and subsidies for the giant A380 passenger airplane, the merged tank company can also hope for joint projects.

Germany and France are already discussing a successor for their two heavy combat tanks, the Leopard and the Leclerc respectively. The new tank is expected to go into service in 2030, possibly with the participation of Spain and Italy.

“We need to give this development some time,” Mr. Le Drian said, attempting to take pressure off the new venture to deliver swift results.

Until then, regulations for exporting armaments will also need to be modified. This is a sensitive area. There were sharp disagreements at Airbus between the Germans and the French over issues like the delivery of combat helicopters to former Libyan leader Moammar Gadhafi.

“By the end of the year, we hope to have aligned the rules,” Mr. Le Drian said.

KMW and Nexter also want to avoid having to seek a large number of national approvals for their tanks. France would like to apply the Farnborough Agreement of 2000. This agreement prevents a national blockade in the case of armaments that contain input from several E.U. countries. But it has never been applied before.


Video: KMW’s Leopard 2 tank in action.

 

The German government is more interested in a de minimis rule, under which national export licenses for joint goods only become inapplicable if the national portion remains below a certain threshold. A figure of 20 to 25 percent was recently being tossed around in Berlin.

Although an agreement over export regulations are not a condition of the merger, the issue will need to be clarified. Still missing before the deal can be formly completed is the approval of the national cartel agencies and the formal privatization of Nexter, currently a state-owned company.

If the integration of the two tank makers resembles what unfolded at EADS, the new group could have some interesting years ahead. The aircraft maker has since eliminated its dual leadership, moved its headquarters to Toulouse and renamed itself after its strongest product, Airbus.

If history does repeat itself, the joint company could be called “Leopard” one day.

 

Thomas Hanke is Handelsblatt’s correspondent in Paris. Markus Fasse is a Handelsblatt editor focusing on the aviation and automobile industry. To contact the authors: hanke@handelsblatt.com; fasse@handelsblatt.com

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