Germany pursues stake purchase in tank maker KNDS to keep influence, sources say

By Mathieu Rosemain and Alexander Hübner

PARIS/MUNICH, Feb 17 (Reuters) - Berlin is considering buying a minority stake in KNDS, the Franco-German maker of Leopard tanks, four people familiar with the matter said, as it seeks to preserve influence after a planned 20 billion euro ($23.7 billion) listing later this year.

Deliberations about the possible purchase of at least 25.1% are ongoing, some of the sources said. They added it was unclear whether any deal would precede or would be part of the initial public offering that one of the sources said was planned for June or July.

Germany's ruling parties have yet to reach an agreement on any deal, said a second person, who spoke on condition of anonymity because the talks are private.

A government stake in KNDS could help to prevent any possible break-up of the company, and possibly provide oversight and influence over tank and artillery production as Europe rapidly rearms.

DEFENCE SECTOR DRAWS MAJOR INVESTOR INTEREST

With its 20 billion euro valuation, KNDS' IPO could become one of the biggest in Europe this year and would establish KNDS as one of Europe's 10 biggest defence companies, in a sector that has drawn massive investor interest as the continent seeks to increase military spending.

The valuation trails the 74 billion euros market capitalisation of Rheinmetall RHMG.DE, Europe's biggest ammunition maker, but is significantly higher than that of another German defence company Renk R3NK.DE, at 5.75 billion euros.

Valuations have been driven by a surge in military spending since Russia's full-scale invasion of Ukraine in 2022.

As well as supplying Kyiv with ammunition, European governments have sought to take control of their own security in response to the policies of U.S. President Donald Trump.

STRATEGIC FRANCO-GERMAN PROJECT

KNDS Chief Executive Jean-Paul Alary said in September the company had held talks with the German government on the possible acquisition of a blocking minority.

A spokesperson for Germany's defence ministry confirmed earlier remarks by its minister Boris Pistorius, saying talks were ongoing and that it was important that German interests were protected.

KNDS and the French Finance Ministry both declined to comment.

KNDS is owned through a 50-50 split between the French government and the family owners of Germany's former Krauss-Maffei Wegmann, or KMW, which plan to sell their stake. KMW was merged with France's Nexter into KNDS.

Should Berlin buy a stake, that would help Germany keep influence over the group that represents a strategic joint project between the EU's two biggest economies.

The tank maker said in December that the planned initial public offering in Paris and Frankfurt would support its long-term growth strategy, broaden its access to capital markets and facilitate further investment in industrial capacity, technology and innovation.

In a sign of how serious rearming efforts are, the German parliament has approved measures to allow defence spending above 1% of gross domestic product, a mechanism designed to bypass constitutional debt rules.

It has also sought to secure influence at others of its national defence firms, including submarine maker TKMS TKMS.DE, where Berlin has the right to veto stake purchases and appoint supervisory board members.

Due to the industry's political relevance, government ownership in defence firms has long been widespread across Europe, with Thales TCFP.PA and Naval Group in France, Leonardo LDOF.MI and Fincantieri FCT.MI in Italy, and Hensoldt HAGG.DE in Germany all counting governments as shareholders.

($1 = 0.8436 euros)