France is conducting an initial review of the proposed sale of US-based aeronautics and defense supplier Circor International Inc. to private equity firm KKR & Co., the first stage of a process that could potentially delay the deal’s completion or require changes because of its impact on domestic military programs.
(Bloomberg) — France is conducting an initial review of the proposed sale of US-based aeronautics and defense supplier Circor International Inc. to private equity firm KKR & Co., the first stage of a process that could potentially delay the deal’s completion or require changes because of its impact on domestic military programs.
The French government is expected to decide in the coming days whether it will conduct a more in-depth review of the agreement and whether it would affect the local Circor Industria unit, according to people familiar with the matter, who spoke on the condition of anonymity.
Shares of Circor dropped 3.9%, the most since May, to close at $52.86 after Bloomberg reported the news.
The review is the latest sign of President Emmanuel Macron’s renewed interest in maintaining oversight of strategic industries and comes a week after France blocked the sale of two locally based nuclear supply businesses to the US industrial supplier Flowserve Inc., effectively scuppering the plan. While the companies are based in France, they’re owned by a Canadian firm.
A spokesperson for KKR declined to comment. Spokespeople for Circor and the French defense ministry didn’t return requests for comment.
Circor, a maker of pumps and valves for aerospace, industrial and energy companies, is headquartered in the US, but Circor Industria, outside Paris, is subject to French investment controls. In 2022, the French unit had a turnover of around €36 million ($37.9 million) and its parent company had a global revenue of €790 million, with 45% coming from the US. Circor also has another French unit, Circor Bodet.
The Industria unit, which Circor acquired in 2005, makes valves and switches for fighter jets such as the Eurofighter Typhoon and Dassault Aviation’s Rafale, as well as for older Mirage 2000 jets, Airbus SE helicopters, and military transport and civil aircrafts. The government review is determining the extent to which the French military is reliant on Industria’s parts.
A spokesman for Airbus declined to comment. Dassault Aviation didn’t return a request for comment.
The French president has expanded the number of sectors that can be subject to government oversight when a non-European investor steps in, and has lowered the threshold to trigger a government review, a process similar to the one used by the US Committee on Foreign Investments.
Circor was the target of a bidding war between KKR and Arcline Investment Management LP that ended in June, when KKR offered to buy the company for $56 a share in a deal that had been expected to close before the end of the year. Previous bids had valued the firm at about $1.7 billion including debt. KKR has offered its own guarantees to the government in an effort to reassure it about its plans, the people said.
KKR holds stakes in other defense and aerospace industry suppliers, including radar maker Hensoldt AG in Germany — whose shares it sold last year at a premium after the Ukraine invasion. According to a 2021 KPMG report, increasing geopolitical instability and growing state investment in military technologies have created opportunities for private equity firms interested in investing in the aerospace and defense sectors.
–With assistance from Peter Eichenbaum.
(Updates with share price decline in third paragraph.)
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