ROME – Italy’s Leonardo will buy a 25.1 percent stake in Germany sensor company Hensoldt for 606 million euros ($730 million), the company said.

By purchasing the stake from U.S. investment fund KKR, Leonardo will become the joint largest shareholder in the company alongside German state-controlled bank Kreditanstalt für Wiederaufbau (KfW).

The move brings together two firms that have worked on the Eurofighter program and gives a nudge to European consolidation in the defense electronics sector.

Leonardo CEO Alessandro Profumo said the deal would bring together the firms’ “complementary strengths,” while “preserving national technologies and capabilities.”

He added, “This investment reflects our long-held view on the importance of building cooperation across the European aerospace and defense industry.”

Upon closing of the deal, which prices Hensoldt at 23 euros a share, Leonardo will propose two new members to join the German firm’s board.

Prior to the announcement, Hensoldt said KKR had been in talks for the sale of the stake with Thales, Indra and Saab, as well as Leonardo.

Italian junior defense minister Stefania Pucciarelli said the “excellent” deal showed Italy’s determination to compete globally in the defense-electronics sector and would “reinforce” Leonardo’s presence in the German market.

Leonardo said it would “maintain a solid capital structure” after the purchase through sell-offs and the listing of its U.S. unit DRS.

That operation was due to take place last month, with the aim of listing 22 percent of the electronics firm to raise $702 million for acquisitions, but was postponed at the last minute in a possible reaction to uncertainty over U.S. defense spending.

The U-turn on DRS has not however stopped the deal to buy the stake in Hensoldt, nor did it stop the announcement last week of the purchase of a 30 percent stake in Italian firm GEM elettronica, a long-term supplier of Leonardo’s and a manufacturer of aerial and land radars, electro-optical sensors and inertial systems.

Under the deal, Leonardo can exercise an option to buy the firm in 2024.

Tom Kington is the Italy correspondent for Defense News.

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