Bloomberg News

Finmeccanica May Sell $1.36 Billion of Civil Units in Refocus

November 15, 2011

Nov. 15 (Bloomberg) -- Finmeccanica SpA, Italy’s biggest defense company, plans to sell at least 1 billion euros ($1.36 billion) of assets in mainly civilian units through 2012 and cancel dividends after forecasting a surprise loss this year.

Finmeccanica slumped as much as 17 percent to the lowest price since December 1996 in Milan trading after predicting an adjusted loss before interest, tax, amortization and restructuring of 200 million euros in 2011. That compares with its earlier forecast of as much as 1.6 billion euros in profit.

Chief Executive Officer Giuseppe Orsi is undertaking Finmeccanica’s biggest overhaul in at least a decade, focusing on military businesses, after discovering unprofitable contracts and inefficiency at aeronautics and transport divisions. The Rome-based company said today that it will set up a partnership for the AnsaldoBreda trainmaking unit in advance of selling the business.

“Weak results, restructuring and charges were widely expected, but we believe investors will be somewhat disappointed that the full extent of the charges will not be known until full-year results and that divestiture actions are not promised until the end of 2012,” Joseph Campbell, an analyst at Barclays Capital, said in a note.

The Italian weapons maker dropped to as low as 3.74 euros and was down 15 percent at 3.79 euros at 12:49 p.m. in Milan, giving the company a market value of 2.19 billion euros.

Boeing 787 Writedowns

Finmeccanica booked nine-month writedowns of 753 million euros tied to supplying components to Boeing Co.’s 787 airliner.

The Italian company’s Alenia unit, which designs and builds the horizontal stabilizers and fuselage sections for the 787-8 model, agreed new terms with the U.S. planemaker in June. Ties between the manufacturers had been strained when Boeing said it had to repair faulty work by Alenia, adding to three years of delays on the 787. The unit signed an agreement with labor unions on early retirements and new hires.

Finmeccanica is accelerating its reorganization after highlighting “structural issues” in July, when it said disposing of AnsaldoBreda was an option being considered. It’s not the first time that Finmeccanica has had to restructure, having sold its Elsag Bailey Process Automation business to ABB Ltd. of Switzerland in 1998.

Potential Disposals

Assets being considered for disposal include operations “in the civil sector,” non-Italian businesses of its defense electronics and security unit and minority shareholdings, Finmeccanica said today in its quarterly earnings report.

Orsi said that, excluding businesses that Finmeccanica sells, Ebita should be “significantly” improved next year, and Finmeccanica may resume dividend payments based on profitability in 2012.

“We are addressing those areas that have underperformed to create a new Finmeccanica that is fit for the future,” Orsi said on a conference call. “Internally, we have made good progress in the last months. It is a work in progress. The proof will be in the execution over the next year.”

The manufacturer, which also owns helicopter maker AgustaWestland, has been in talks with “key players” on AnsaldoBreda’s rolling-stock operations, Orsi said. Finmeccanica would be interested in selling the entire railway-related business should investors also be interested in its stake in the Ansaldo STS signaling venture, he said.

Finmeccanica’s minority holding in Avio SpA, a propulsion- systems manufacturer, may also be sold, Orsi said.

Minority Holdings

In addition to Avio and Ansaldo STS, the Italian company’s minority civil assets include a 33 percent stake in satellite maker Thales Alenia Space and 25 percent of Russia’s Sukhoi Civil Aircraft Co., according to its website. Finmeccanica is either an equal partner or majority owner in satellite services partnership Telespazio, turboprop-plane manufacturer ATR and SuperJet International, a Russian planemaking startup co-owned by Sukhoi.

Finmeccanica will also take steps to “cut exposure” to losses at the aeronautics division, though the business doesn’t face the same “structural problems” as the trainmaking unit, Orsi said. Reorganization will help the aeronautic division’s Ebita by 200 million euros by 2013, he said.

Finmeccanica Chairman Pier Francesco Guarguaglini, who is a former CEO, did not attend a board meeting to sign off on quarterly results. The company declined to say why.

The third-quarter net loss was 790 million euros, compared with profit of 112 million euros a year earlier. The loss before interest, taxes and amortization was 627 million euros. That compares with an estimate from analysts of 176 million euros in profit.

--Editors: Tom Lavell, Andrew Noel

To contact the reporters on this story: Sabine Pirone in London at spirone@bloomberg.net; Marco Bertacche in Milan at mbertacche@bloomberg.net

To contact the editor responsible for this story: Benedikt Kammel at bkammel@bloomberg.net


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