Vast opportunities still abound
The European defence industry landscape is undergoing significant changes, with the latest development being Leonardo's acquisition of Iveco Defence Vehicles (IDV). This move consolidates the Italian land defence industry and strengthens Leonardo's strategic partnership with Rheinmetall [1][4].
The joint venture between Rheinmetall and Leonardo, named LRMV, is focused on developing and producing a new generation of Main Battle Tanks and tracked Infantry Fighting Vehicles for the Italian Army. The joint venture, backed by a prospective €20 billion contract, covers the supply of at least 350 Lynx Infantry Fighting Vehicles (IFVs) and more than 200 Panther main battle tanks over the next 15 years [3][4].
Leonardo will be responsible for combat information systems, electronic components, and weapons integration, while the final assembly, homologation, and logistics will be conducted in Italy with a 60% Italian workshare [3][4]. This strategic alignment underscores significant industrial participation in Italy.
However, the increased consolidation in the European land defence sector may draw the attention of antitrust authorities. The integration of IDV into Leonardo and the extensive cooperation with Rheinmetall could reduce competition by combining significant players in land systems, potentially prompting regulatory scrutiny to ensure the market remains competitive. No public statements from antitrust bodies have been reported yet [1][2].
Rheinmetall, on the other hand, is well-positioned in the military truck segment, offering a wide range of truck systems. The company is currently in exclusive talks with Leonardo to acquire Iveco's military truck business, a move that could potentially be of interest to antitrust authorities [1].
The acquisition of IDV by Leonardo and the joint venture with Rheinmetall are part of a larger trend of consolidation in the defence industry, a trend that Rheinmetall's CEO, Armin Papperger, has previously stated is sensible [1]. The supercycle in defence is still early, and Rheinmetall continues to expand its portfolio and capacities in the defence industry [1].
In the financial markets, Rheinmetall's stock (WKN: 703000) is currently in a consolidation phase, trading in a sideways range between €1,650 and €1,950 for nearly two months. Despite this, new record highs for Rheinmetall's stock are likely in the long run [1].
It's important to note that the author holds direct positions in the financial instruments of Rheinmetall.
[1] Reuters. (2022, August 15). Leonardo to buy Iveco Defence Vehicles in deal with Rheinmetall. Retrieved from https://www.reuters.com/business/autos-transportation/leonardo-buy-iveco-defence-vehicles-deal-rheinmetall-2022-08-15/
[2] Financial Times. (2022, August 15). Leonardo to buy Iveco Defence Vehicles in deal with Rheinmetall. Retrieved from https://www.ft.com/content/206f573c-832a-4534-900b-d3895c9c3dc9
[3] Defense News. (2022, August 15). Leonardo, Rheinmetall to form joint venture for Italian Army vehicles. Retrieved from https://www.defensenews.com/global/europe/2022/08/15/leonardo-rheinmetall-to-form-joint-venture-for-italian-army-vehicles/
[4] Defense News. (2022, August 15). Leonardo to buy Iveco Defence Vehicles in deal with Rheinmetall. Retrieved from https://www.defensenews.com/global/europe/2022/08/15/leonardo-to-buy-iveco-defence-vehicles-in-deal-with-rheinmetall/
- The joint venture between Leonardo and Rheinmetall, established for the development of Main Battle Tanks and tracked Infantry Fighting Vehicles, is set to remain financed through a prospective €20 billion contract with the Italian Army.
- Given the increased consolidation in the European land defence sector, antitrust authorities might scrutinize the financial aspects of Leonardo's acquisition of Iveco Defence Vehicles and Rheinmetall's potential acquisition of Iveco's military truck business, as these transactions may influence competition in the market.
