RADA Electronic Industries Ltd. (NASDAQ: RADA, TASE: RADA)
(“RADA”), a leading provider of advanced software-defined military
tactical radars, and Leonardo DRS Inc. (“Leonardo DRS”), a leading
mid-tier defense technology provider, today announced that they
have entered into a definitive agreement to merge and become a
combined public company (the “Combined Company”). The capabilities
of the two companies are expected to generate strong growth from a
wide range of new and high-growth markets, and are shaping the
future battlefield for the U.S. military and its allies across all
domains.
Upon closing of the transaction, which is
expected in the fourth quarter of 2022, RADA will become a
wholly-owned subsidiary of Leonardo DRS. Leonardo DRS is expected
to be listed on NASDAQ and TASE under the symbol “DRS.”
This transaction is anticipated to strengthen
Leonardo DRS into a market leader in advanced sensing and force
protection aligned to many of the fastest growing segments of the
U.S. and international defense markets. RADA’s unique advanced
tactical radars are complementary to Leonardo DRS and are expected
to improve its position as an air defense, counter-UAS and vehicle
protection integrator in the force protection market segment. For
RADA, combining with Leonardo DRS is expected to significantly
bolster its global competitive positioning and increase its scale,
program diversity, cash generation and addressable market,
providing significant future growth and value creation
opportunities. Together, the Combined Company expects to be a
market leader in force protection and integrated multi-domain
systems, addressing global opportunities through the worldwide
presence of Leonardo SpA.
RADA and Leonardo DRS are strong and
complementary technology companies, and their close historical
relationship through collaboration on multiple programs, has
resulted in a deep cultural fit. The Combined Company will work
across a broad portfolio of world-class defense products, including
advanced sensing, force protection, network computing and
electrical power & propulsion. The Combined Company will have
positions on critical force protection programs, including its
partnership on the Maneuver-Short Range Air Defense (M-SHORAD) and
RADA positions on SOCOM SIP (special operations command system
integration partner) with Anduril Industries, the USMC GBAD (ground
based air defense) and the USAF ABAD (Air Base Air Defense)
Programs of Record.
Leonardo DRS’s parent company and sole
shareholder, Leonardo SpA, is a leading global Aerospace and
Defense company. Leonardo SpA’s market position will provide access
to a reshaped European defense market as well as defense markets
around the world, while also establishing a home market in
Israel."The combination of RADA’s tactical radar capabilities and
Leonardo DRS’ strength as a premier mid-tier defense provider make
the Combined Company a leader in the rapidly growing force
protection market, increases our addressable market, expands
international opportunities and ultimately unlocks value for
shareholders,” said William J. Lynn III, CEO of Leonardo DRS. “The
transaction also provides flexibility for the Combined Company to
add capabilities in Leonardo DRS’ core markets through targeted
acquisitions and strategic investments as we expect to supplement
strong organic growth with M&A and dividend distributions as
part of our overall strategy going forward.”
Dov Sella, RADA’s CEO, commented: “I could not
be prouder of the platform we have built throughout my nearly 20
years with RADA, culminating in this important strategic
transaction with Leonardo DRS. The combination of two leading
technology-focused defense companies with diversified exposure to
key U.S. Department of Defense programs and an international
presence creates a true win-win for RADA and Leonardo DRS
shareholders. The transaction represents the first time a major
U.S.-based defense company backed by a global defense prime has
acquired a significant Israeli defense technology company. This
unique transaction will strengthen the Israeli defense industry and
set trends and direction for the future. For RADA specifically,
joining forces with Leonardo DRS will significantly increase our
competitiveness in the emerging and demanding markets we are
addressing, which are dominated by strong and established players.
We look forward to working alongside the Leonardo DRS team to
continue driving innovation in the advanced sensing and force
protection markets, and value creation for our shareholders.”
The merger comes at a time when conflicts around
the globe are highlighting the importance of the Combined Company’s
solutions, including vehicle protection from missile strikes and
protecting troops from aerial threats. According to Mr. Lynn, “The
conflict in Ukraine has underscored the vulnerability of forces to
drone attacks and has highlighted the need for modern, capable
force protection systems. Not only is this accelerating U.S.
purchases of these systems, but it is moving European countries,
which are considerably behind in this area, to acquire more
critical force protection assets. The combination of RADA and
Leonardo DRS will open international market opportunities,
particularly in short-range air defense, counter-UAS, counter
rockets, artillery and mortars (C-RAM) and vehicle protection
systems.”
Beyond the current conflict in Europe,
counter-terrorism and threats from China, Russia and others are
expected to increase demand for the high-growth core sensing, force
protection, network computing, and electrical power and propulsion
technologies that the Combined Company provides. Mr. Lynn
commented, “The unique defense technologies developed by the
Combined Company will define the future of sensing and help to
shape the future of the battlefield.”
TRANSACTION SUMMARY:
- Leonardo DRS will acquire 100% of
the share capital in RADA in exchange for approximately 19.5%
equity ownership to RADA shareholders in the Combined Company,
which will maintain the name Leonardo DRS and is anticipated to
trade on NASDAQ and TASE under the symbol “DRS.”
- Post-closing, RADA will become a
wholly-owned Israeli subsidiary of Leonardo DRS and operate as a
business unit – including its U.S. subsidiaries – within DRS’s
Advanced Sensing and Computing segment.
- The Board of Directors of each of
RADA and Leonardo SpA approved the transaction, which is expected
to close in the fourth quarter of 2022 (subject to approval of the
stockholders of RADA and other closing conditions including the
receipt of certain regulatory approvals).
- Transaction is expected to be
accretive to RADA earnings per share in year one.
- The 19.5% ownership in the combined company provided to RADA
shareholders was designed to provide a premium in excess of
20%3.
- The business combination is
anticipated to be tax free for RADA and Leonardo DRS
shareholders.
- Combined Company had $2.7 billion
of Revenue and $305 million of Adjusted EBITDA in 20214.
- At the end of the first quarter of
2022, Combined Company had pro forma net financial debt of
approximately $197 million and a net financial debt to LTM Adjusted
EBITDA ratio of 0.6x5.
Additional information about the proposed
merger, including a copy of the definitive agreement and investor
presentation, will be provided in a Report on Form 6-K to be filed
by RADA and a Current Report on Form 8-K to be filed by DRS with
the SEC and available at www.sec.gov.
AdvisorsIn connection with this
transaction, Evercore is serving as exclusive financial advisor to
RADA and J.P. Morgan Securities LLC is serving as exclusive
financial advisor to Leonardo DRS. DLA Piper LLP (US) and S.
Friedman & Co. are serving as legal advisors to RADA and
Sullivan & Cromwell LLP and Herzog Fox & Neeman are serving
as legal advisors to Leonardo DRS.
Conference CallLeonardo DRS and
RADA will host a joint investor conference call to discuss the
proposed transaction on Tuesday, June 21, 2022 at 8:30 a.m. Eastern
Time. All interested parties may listen through the following call
details:
U.S./Canada Participant Toll-Free Dial-In
Number: (844) 831-4554International Participant Dial-In Number:
(213) 320-2554Conference ID: 1566498Webcast link:
https://edge.media-server.com/mmc/p/rvructut
An audio-only replay will be available beginning
11:30 a.m. Eastern Time on Tuesday June 21, 2022 until 11:30 a.m.
Eastern Time on Tuesday June 28, 2022. To access the recording,
please dial (855) 859-2056 or (404) 537-3406 and when prompted for
the conference ID, enter 1566498.
About RADARADA is a global
defense technology company focused on proprietary radar solutions
and legacy avionics systems. The Company is a leader in
mini-tactical radars, serving attractive, high-growth markets which
include active military protection (SHORAD, C-RAM), counter-UAS
missions, critical infrastructure protection and border
surveillance.
About Leonardo DRSLeonardo DRS
is a leading mid-tier provider of defense products and technologies
for the U.S. military and its allies with core capabilities in
advanced sensing, force protection, network computing and electric
power and propulsion. Through its two segments, Advanced Sensing
and Computing, and Integrated Mission Systems, the company is
shaping the future of the battlefield. Headquartered in Arlington,
Virginia, Leonardo DRS is a wholly owned subsidiary of Leonardo
S.p.A. See the full range of capabilities at
www.LeonardoDRS.com.
Forward-Looking StatementsThis
communication includes certain forward looking statements and
forward looking information within the meaning of the Private
Securities Litigation Reform Act of 1995 or the Israeli Securities
Law, 1968 (as applicable). (collectively, “FLI”) to provide
Leonardo DRS, Inc. (“DRS”) and RADA Electronic Industries Ltd.
(“RADA”) stockholders with information about DRS, RADA and their
respective subsidiaries and affiliates. FLI is typically identified
by words such as “anticipate”, “expect”, “project”, “estimate”,
“forecast”, “plan”, “intend”, “target”, “believe”, “likely”,
“seek”, “aim”, “project” and similar words suggesting future
outcomes or statements regarding an outlook. All statements other
than statements of historical fact may be FLI. In particular, this
communication contains FLI pertaining to, but not limited to,
information with respect to the following: the transaction and its
potential benefits; future business prospects and performance;
future returns; cash flows and enhanced margins; synergies; and
leadership and governance structure.
Although we believe that the FLI is reasonable
based on the information available today and processes used to
prepare it, such statements are not guarantees of future
performance and you are cautioned against placing undue reliance on
FLI. By its nature, FLI involves a variety of assumptions, which
are based upon factors that may be difficult to predict and that
may involve known and unknown risks and uncertainties and other
factors which may cause actual results and outcomes to differ
materially from those expressed or implied by these FLI, including,
but not limited to, the following: the occurrence of any event,
change or other circumstances that could give rise to the right of
one or both of the parties to terminate the merger agreement; the
timing and completion of the transaction, including receipt of
regulatory approvals and RADA stockholder approval and the
satisfaction of other conditions precedent; the realization of
anticipated benefits and synergies of the transaction and the
timing thereof; the success of integration plans; the risk that any
announcements relating to the proposed transaction could have
adverse effects on the market price of RADA; the focus of
management time and attention on the transaction and other
disruptions arising from the transaction; the volatility of the
international marketplace; DRS’s anticipated public listing on the
NASDAQ and Tel-Aviv Stock Exchange upon the anticipated closing of
the transaction; potential adverse reactions or changes to
business, government or employee relationships, including those
resulting from the announcement or completion of the transaction;
general U.S., Israeli and global social, economic, political,
credit and business conditions; changes in laws; regulations and
government policies; changes in taxes and tax rates; customer,
stockholder, regulatory and other stakeholder approvals and
support; material adverse changes in economic and industry
conditions; the pandemic created by the outbreak of COVID-19 and
resulting effects on economic conditions; the ramifications of the
Russia-Ukraine conflict, and other risks and uncertainties listed
in DRS’s filings or RADA’s filings with the SEC, including under
the heading “Risk Factors” in DRS’s most recently filed Annual
Report on Form 10-K as such risk factors may be amended,
supplemented or superseded from time to time by other filings with
the SEC and under the heading “Risk Factors” in RADA’s most
recently filed Annual Report on Form 20-F as such risk factors may
be amended, supplemented or superseded from time to time.
We caution that the foregoing list of factors is
not exhaustive and is made as of the date hereof. Additional
information about these and other assumptions, risks and
uncertainties can be found in reports and filings by DRS and RADA
with the U.S. Securities and Exchange Commission, including any
prospectus, registration statement or other documents to be filed
or furnished in connection with the transaction. Due to the
interdependencies and correlation of these factors, as well as
other factors, the impact of any one assumption, risk or
uncertainty on FLI cannot be determined with certainty.
Except to the extent required by law, DRS and
RADA assume no obligation to publicly update or revise any FLI,
whether as a result of new information, future events or otherwise.
All FLI in this communication is expressly qualified in its
entirety by these cautionary statements.
No Offer or SolicitationThis
communication shall not constitute an offer to sell or the
solicitation of an offer to buy any securities, nor shall there be
any sale of securities in any jurisdiction in which such offer,
solicitation or sale would be unlawful prior to appropriate
registration or qualification under the securities laws of such
jurisdiction. No offering of securities shall be made except by
means of a prospectus meeting the requirements of Section 10 of the
Securities Act of 1933, as amended. This communication does not
constitute an offer of securities pursuant to the Israeli
Securities Law, 1968, or a recommendation regarding the purchase of
securities of RADA or DRS.
ADDITIONAL INFORMATION ABOUT THE
TRANSACTION AND WHERE TO FIND ITDRS will file with the
U.S. Securities and Exchange Commission (SEC) a registration
statement on Form S-4, which will include a prospectus of DRS, and
certain other documents in connection with the transaction.
SHAREHOLDERS OF RADA ARE URGED TO READ THE PROSPECTUS AND
ANY OTHER DOCUMENTS FILED OR TO BE FILED WITH THE SEC IN CONNECTION
WITH THE TRANSACTION WHEN THEY BECOME AVAILABLE, AS THEY WILL
CONTAIN IMPORTANT INFORMATION ABOUT DRS, RADA, THE TRANSACTION AND
RELATED MATTERS. The registration statement and prospectus
and other documents filed or furnished by DRS and RADA with the
SEC, when filed, will be available free of charge at the SEC’s
website at www.sec.gov. Alternatively, shareholders will be able to
obtain free copies of the registration statement, prospectus and
other documents which will be filed or furnished with the SEC by
DRS by contacting DRS at +1 877-538-0912 or 2345 Crystal Drive
Suite 1000 Arlington, Virginia 22202.
RADA Investor ContactAvi
Israel, CFO+972 76 538 6200mrkt@rada.comwww.rada.com
Leonardo DRS Investor
ContactCody Slach or Jeff Grampp, CFAGateway Group+1 949
574 3860DRS@GatewayIR.com
Leonardo DRS Media
ContactMichael MountVice President, Communications and
Public Affairs+1 571 447 4624mmount@drs.com
APPENDIX
RECONCILIATIONS TO GAAP
2021 Combined Company
Revenue
($ in millions) |
2021 |
Total Revenue Leonardo DRS |
|
10-K Revenues |
$ 2,879 |
Less divestitures |
$ 232 |
|
|
Leonardo DRS Revenue Less Divestitures |
$ 2,647 |
|
|
Total Revenue Rada |
|
20-F Revenue |
$ 117 |
|
|
Combined Revenue |
$ 2,764 |
|
|
Elimination Intercompany |
|
Rada to DRS |
$(31) |
|
|
Combined Revenue |
$ 2,733 |
Combined Company Adjusted
EBITDA
($ in millions) |
2018 |
2019 |
2020 |
2021 |
2021Q1 |
2022Q1 |
LTM |
Leonardo DRS net earnings |
$(10) |
$ 75 |
$ 85 |
$ 154 |
$ 28 |
$ 36 |
$ 162 |
|
|
|
|
|
|
|
|
Income tax provision |
(7) |
20 |
27 |
46 |
13 |
12 |
46 |
Amortization of intangibles |
93 |
9 |
9 |
9 |
2 |
2 |
9 |
Depreciation |
35 |
42 |
44 |
49 |
12 |
13 |
50 |
Restructuring costs |
14 |
20 |
12 |
5 |
0 |
0 |
5 |
Interest expense |
58 |
65 |
64 |
35 |
9 |
8 |
34 |
Deal related transaction costs |
0 |
0 |
9 |
5 |
4 |
2 |
3 |
Foreign exchange |
3 |
0 |
1 |
1 |
0 |
0 |
1 |
COVID-19 response costs |
0 |
0 |
12 |
6 |
3 |
0 |
3 |
Non-service pension expense |
1 |
3 |
5 |
0 |
0 |
0 |
0 |
|
|
|
|
|
|
|
|
Leonardo DRS adjusted EBITDA |
$ 187 |
$ 234 |
$ 268 |
$ 310 |
$ 71 |
$ 73 |
$ 312 |
|
|
|
|
|
|
|
|
Less divestitures: |
|
|
|
|
|
|
|
Net earnings |
15 |
20 |
28 |
22 |
4 |
4 |
22 |
Income tax provision |
5 |
6 |
8 |
7 |
1 |
1 |
6 |
Depreciation |
1 |
1 |
1 |
3 |
1 |
0 |
2 |
|
|
|
|
|
|
|
|
Leonardo DRS adjusted EBITDA less divestitures |
$ 166 |
$ 207 |
$ 231 |
$ 278 |
$ 64 |
$ 68 |
$ 281 |
|
|
|
|
|
|
|
|
RADA Net Income (loss) |
$(0) |
$(2) |
$6 |
$ 25 |
$ 4 |
$(1) |
$ 21 |
|
|
|
|
|
|
|
|
Tax expense |
0 |
0 |
0 |
(5) |
0 |
(0) |
(5) |
Financial expense (income), net |
0 |
0 |
(0) |
0 |
(0) |
(0) |
0 |
Depreciation |
1 |
1 |
2 |
4 |
1 |
1 |
4 |
Employee option compensation |
1 |
1 |
1 |
3 |
0 |
1 |
3 |
Other non-cash amortization |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
|
|
|
|
|
|
|
|
RADA Adjusted EBITDA |
$2 |
$ 0 |
$ 10 |
$ 27 |
$ 5 |
$ 1 |
$ 24 |
|
|
|
|
|
|
|
|
Combined Adjusted EBITDA |
$ 168 |
$ 208 |
$ 240 |
$ 305 |
$ 69 |
$ 69 |
$ 305 |
March 31, 2022 Net Financial
Debt
($ in millions) |
LeonardoDRS |
RADA |
Combined |
|
|
|
|
Intercompany with Parent |
$ 367 |
$ 0 |
$ 367 |
Finance leases and other |
164 |
0 |
164 |
Short term borrowings |
9 |
0 |
9 |
|
|
|
|
Total Debt |
$ 540 |
$ 0 |
$ 540 |
|
|
|
|
Less Finance leases and other |
$ 164 |
$ 0 |
$ 164 |
Less Cash and cash equivalents at the end of period |
113 |
66 |
179 |
|
|
|
|
Net Financial Debt |
$ 263 |
$(66) |
$ 197 |
_____________________________
1 See the Appendix for reconciliations of non-GAAP measures to
the most directly comparable GAAP measures. 2 Based on RADA 30-day
VWAP as of June 17, 2022 of $11.763 Based on RADA 30-day VWAP as of
June 17, 2022 of $11.764 See the Appendix for reconciliations of
non-GAAP measures to the most directly comparable GAAP measures.5
See the Appendix for reconciliations of non-GAAP measures to the
most directly comparable GAAP measures.
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