German, French tank makers KMW and Nexter seal armoured vehicles tie-up

29 July 2015

French and German armoured vehicle makers Nexter and KMW will seal their long-planned merger on Wednesday, the French defence ministry said, combining the Leclerc and Leopard tank brands in what could be a blueprint for more European defence consolidation.

French state-controlled Nexter Systems and privately-held Krauss-Maffei Wegmann GmbH & Co KG of Germany have been in exclusive tie-up talks for more than a year.

One apparent sticking point had been the reported preference of German Vice-Chancellor Sigmar Gabriel for an all-German merger of KMW with automotive and defence group Rheinmetall designed to save jobs.

Another was the need for a change to French law to accommodate the deal, which took effect on July 9.

The merger is being closely watched to see if it opens the door to further consolidation among Europe's defence companies, after a proposed tie-up between EADS, now Airbus Group, and BAE Systems failed due to political opposition in 2012.

KMW CEO Frank Haun, in an interview with Reuters, said the new company was seeking to grow quickly, but declined to speculate on potential partners, which some industry experts say could include Finmeccanica unit OTO Melara and BAE's CTA International, as well as Rheinmetall, which previously tried to take over KMW.

Haun also called on the German and French governments to agree joint export rules for the newly merged company, given Germany's strict arms controls.

"You can't say: The German army is not buying anything, you're not allowed to export anything, but you have to keep jobs here. It's irrational," Haun said.

The merged company will be 50 percent owned by the French government through GIAT Industries and 50 percent by the Bode-Wegmann family, which owns KMW.

A new holding company will have its headquarters in the Netherlands but the operating bases will remain in Germany and France, Haun said. The supervisory board will be made up of seven people, he said, among them two named by the French state, two named by Wegmann and three independents, who should not be from either France or Germany, he said.

KMW and Nexter each employ more than 3,000 people worldwide. KMW supplies wheeled and tracked fighting vehicles to 30 nations and expects sales of 2 billion euros ($2.2 billion) in 2016, while Nexter is a maker of systems, ammunition and equipment with sales of 1.05 billion euros last year.

Western competitors on world military hardware markets include Britian's BAE, maker of the Challenger tank, and General Dynamics of the United States, which makes the Abrams.