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Finmeccanica Sells Stake in Energy Unit

Oct. 9, 2013 - 10:47AM   |  
By TOM KINGTON   |   Comments
Debt Relief: Finmeccanica sold most of its stake in Ansaldo Energia, a move that will help the company ease its debt burden.
Debt Relief: Finmeccanica sold most of its stake in Ansaldo Energia, a move that will help the company ease its debt burden. (Ansaldo Energia)
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ROME — Italy’s Finmeccanica sought to set aside some of its recent woes by agreeing to sell most of its stake in energy unit Ansaldo Energia, which will garner it about €400 million (US $544 million).

The deal was discussed at an Oct. 4 board meeting, and while a formal announcement was not forthcoming by the end of the day, a company source said the deal was done.

The deal brings the company closer to an end of a long-running saga about whether it would be able to shed civil units and drive down its mounting debt, for which it has been punished by financial markets and criticized by analysts.

Finmeccanica has been promising for months to sell units, only to be stymied by political opposition in Italy to selling off job-providing energy and transport units.

But in a neat piece of reshuffling of ownership by the Italian government, state-controlled Finmeccanica will sell 40 percent of the 55 percent stake it holds in Ansaldo Energia to the Italian government’s Cassa Depositi e Prestiti (CDP) fund, meaning unions will be satisfied the unit stays in state hands, while Finmeccanica gets much-needed cash.

Following approval from the government last week, the Finmeccanica board met on Oct. 4 to finalize the deal, which sees the defense and aerospace group retain 15 percent of Ansaldo Energia for three years. US investment fund First Reserve, which owns the remaining 45 percent of the unit, will sell its entire stake to the CDP fund.

Finmeccanica’s sale, news of which boosted its share price last week, will net it about €400 million, which, added to the €260 million it yielded this year from the sale to General Electric of its stake in propulsion firm Avio, means the company is edging toward the €1 billion in selloffs promised last year by former CEO Giuseppe Orsi to help pay off Finmeccanica’s growing debt.

Some of the cash also may be used by Finmeccanica to increase its stake in Avio’s space activity, which is controlled by UK fund Cinven, but which has received nonbinding offers from Safran and EADS, a source told Defense News.

South Korea’s Doosan, which has reportedly expressed an interest in Ansaldo Energia, could offer to take a stake in the firm from the CDP.

The sales bring to a halt an era in which Finmeccanica grew through acquisitions, including the 2009 purchase of US electronics company DRS Technologies.

“The closure of a deal to sell a stake in Energia would be encouraging, in our opinion, as it would provide an additional indication of management's progress in restructuring the group to concentrate the portfolio on Finmec’s core aerospace businesses and improve cash flow and profitability,” wrote UBS in a statement released as the deal appeared imminent.

The downside for UBS is that the deal with the CDP does not extend to loss-producing transport unit Ansaldo Breda, which has long penalized Finmeccanica in the eyes of market analysts.

“A sale of Energia to the CDP would show that the Italian government is willing to step up to support Finmeccanica, although we would prefer it if the CDP acquired Breda. We hope that this is the first of a number of disposals of non-core assets,” wrote UBS Oct. 4.

Analysts also noted that Finmeccanica must still push on with restructuring to bring down costs, with UBS stating the Italian government is not helping that effort.

On Sept. 19, ahead of the Ansaldo Energia deal, Moody’s downgraded Finmeccanica to speculative or junk status from its former investment-grade rating. Moody’s lead analyst for Finmeccanica said the Italian company’s ability to sell off stakes in assets would not automatically mean an upgrade.

“The balance sheet has been over-leveraged owing to declining earnings and higher borrowings, and the proposed asset sales were meant to address much of that problem,” Senior Vice President Russell Solomon said.

“But the asset sales have already been incorporated into the rating, and the bigger issue has always been the operating inefficiencies and related weakness in profitability measures, which given the difficult market environment, we now believe will take longer to rectify, notwithstanding the company’s restructuring activities,” he said.

Solomon said Ansaldo Breda is “still the bigger Achilles’ heel,” and its sale would “bolster the credit profile in a more meaningful way, given its cash absorptive nature in the range of 250 million euros a year.

“Stemming that cash bleed would go a long way towards stabilizing the situation and enhancing financial flexibility while the strategic reorganization is being implemented,” he said.

Union members who met with Finmeccanica’s management Oct. 4 said they believe the CDP might step in to take a stake in Ansaldo Breda and railway signalling unit Ansaldo STS.

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