PARIS — State-owned Nexter of France and family-controlled Kraus-Maffei Wegmann of Germany signed an agreement on July 29 to set up a 50:50 joint venture holding company, marking a major consolidation in the European land weapons sector.

"The alliance of KMW and Nexter creates a group with the momentum and innovative force required to succeed and prosper in international competition," the companies said in a joint statement.

A closing of the deal is expected early in January, after clearance by European Union, French, German and US regulatory authorities, company and defense ministry sources in France and Germany said. The Committee on Foreign Investment in the United States is required to approve the deal as KMW has a US subsidiary.

The agreement is expected to generate benefits totaling €60 million ($66 million) for the two companies in five years’ time, amidst growing competition from armored vehicle producers around the world.

The two companies announced in May 2014 their plan to create the holding company, which carries the project name of KMW and Nexter Together, or KANT. The company will be based in Amsterdam. A competition will be held to determine the new company's final name.

Nexter sees each partner finding €35 million of benefits in five years time through the alliance, an industry source said. The partnership seeks to cut costs, such as buying raw material and manufacturing tools. The partners seek to boost foreign sales by agreeing which products to pitch and fielding a single export sales team.

Exports account for 56 percent of annual sales for Nexter and some 80 percent for KMW, a French defense official said.

Nexter and KMW are in direct competition for an armored vehicle contract in one of the Baltic states, the industry source said. The French company sent the Titus 6x6 armored vehicle to Qatar for trials, with a first demonstration in June and a second currently in progress. The vehicle faces competition from vehicles made by Patria and Iveco.

The alliance could open its doors to other partners such as Italian gun maker Oto Melara or French light vehicle maker Renault Trucks Defense (RTD), the French defense official said. But RTD's parent company, Volvo, would need to decide on such a move.

France and Germany have started early studies on a next-generation tank to succeed respectively the Leclerc and Leopard, the official said. France's 2014-19 multiyear military budget lacks funds for acquisition of a Leclerc successor, so the replacement could feature in the next budget law. Nexter has won a contract for modernization of the Leclerc.

The companies could self-finance work for vehicles for export markets and the government could buy off the shelf, such as the French special forces bought the RTD Sherpa vehicle, the French defense official said.

The Griffon, a planned six-wheel troop carrier in the €5 billion Scorpion Army modernization program, is also aimed at export markets and will be built around a simple design rather the more usual technical sophistication, the officer official said.

Production of current products will continue, but the partners could invest company funds to develop new vehicles, the industry source said. There is scope for designing and building a new medium-weight armored vehicle as the two companies already produce 4x4 and 8x8 vehicles.

Nexter Chairman Philippe Burtin and KMW Chairman Frank Haun signed the main document that sets outs the agreement. French Defense Minister Jean-Yves Le Drian and the German Defense Ministry's parliamentary secretary, Markus Grubel, attended the corporate signing, which required political support, at the French Defense Ministry in Paris.

The annexes of the agreement run to thousands of pages, which the top executives have initialed. The deal is expected to go into effect in early January after clearance by the French, German and EU regulatory authorities, the official said.

There is political debate in Germany over the partnership with Nexter, with a call for protection of key technology. But there is a lack of clarity on what that sensitive know-how is, the industry source said.

Haun effectively opened the Nexter alliance talks five years ago, according to the industry source. The political scene in Germany changed with general elections in 2013, which allowed a more positive approach to a partnership with the French state-owned company, the same source said.

Even before that, there had been an attempt to forge a Franco-German partnership 10 years ago, but there was a lack of enthusiasm at Nexter then, a defense specialist said.

There is strong German debate on a domestic or European consolidation, with land weapons specialist Rheinmetall seen by some as a preferable partner for KMW. But the Bode family preferred to back the deal with Nexter.

The partnership will have annual sales of almost €2 billion euros and an order book of €9 billion, and employ more than 6,000 staff, the companies said.


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