Italian defense contractor Leonardo DRS (FINMY +0.85%) has tapped the brakes on a planned New York offering of its U.S. subsidiary, just nine days after announcing the initial public offering (IPO).
In a statement, Leonardo said, "adverse market conditions did not allow an adequate valuation of DRS," but said it could revisit an IPO later when market conditions are more favorable.
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On March 15, the Italian company announced plans to sell 31.9 million shares of its Leonardo DRS unit, hoping to raise more than $600 million to be used to pay down some of the parent's more than 3 billion euros ($3.55 billion) in debt. Post-deal, the public would have owned 22% of DRS, with Leonardo owning the remaining 78%.
Leonardo's announcement doesn't offer much clarity explaining the abrupt reversal, citing the adverse conditions that were pressuring valuation but also saying that the company saw "investor interest within the price range during the course of the roadshow."
An investment banking source said that Leonardo management was afraid the IPO would be met with volatility, with Reuters reporting that demand for the shares was skewed toward hedge funds and other investors deemed speculative. The banking source said Leonardo remains interested in doing the IPO, but intends to wait until U.S. markets are more receptive to defense stocks and the offering might be more receptive to more buy-and-hold institutions.
Defense stocks have been under pressure of late due to fears that a combination of a new administration and the need to pay for COVID-19 stimulus will eat into the Pentagon budget.
