Leonardo Cancels U.S. IPO of DRS Defense Electronics Unit

(Bloomberg) -- Leonardo SpA canceled the initial public offering of its DRS unit after the Italian aerospace firm failed to attract the price it sought for a stake in the U.S. business.

Leonardo shares sank as much as 11%, the most in more than a year, on Wednesday after it cited market conditions for the decision. The initial bid price was below the $20-22 per share target, people familiar with the matter said.

DRS, an Arlington, Virginia-based maker of military electronics systems, was set to list on the New York Stock Exchange this week. Leonardo had targeted raising as much as $807 million from the stock sale. It said it would revisit the plan when conditions are more favorable.

“Notwithstanding investor interest within the price range during the course of the roadshow, adverse market conditions did not allow an adequate valuation of DRS,” Leonardo said.

Leonardo shares were down 6.8% to 6.82 euros as of 9:29 a.m. in Milan, leaving the company with a market value of 4 billion euros ($4.7 billion).

At the targeted range, DRS would have had a market value that rivaled its parent’s. Leonardo planned to sell almost 32 million shares of the U.S. business, while retaining a 78% stake.

A DRS IPO remains a solid option and the Italian company is confident it can be delivered as soon as this year, the people familiar with the matter said, asking not to be named because a decision hasn’t been made. The Biden administration’s just-announced cuts in local defense spending had an impact on the IPO decision, the people added.

Leonardo, Italy’s largest aerospace company, set plans for the DRS IPO last month. It said then that it planned to keep a majority stake and was targeting an IPO by the end of March.

The pandemic has taken a toll on Leonardo, with the company reporting negative free operating cash flow of 2.6 billion euros at the end of September as the crisis prompted a shift in payments to the end of the year.

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