Italy's biggest defence company, Finmeccanica SpA, has bought US military-electronics manufacturer DRS Technologies Inc. in a deal estimated to cost it around $5.2 billion, including taking on the latter's $1.2 billion debt.

This price is quite a premium to the $3 billion that the Italian major was expected to pay when news first broke on the proposed acquisition. (See: Italy's Finmeccanica looking to buy US defence electronics contractor DRS Technologies for $3 billion)

Amongst all the recent deals undertaken by European defence contractors to get a strong foothold in the US, the largest arms market in the world, this is the biggest.

DRS is No. 69 among US defense contractors by dollar value of Pentagon work on which it is the main contractor, with $478 million in 2006, according to US Defense Department figures. American defence spending will rise 7.5 per cent to $515 billion in fiscal 2009, the 11th consecutive increase, based on a funding request that President George W. Bush sent to Congress on 4 February.

Britain's BAE Systems Plc has been one of the overseas companies to take the lead in acquiring US firms, and bought armoured vehicle maker United Defense Industries Inc. for $4.2 billion in 2005 followed by the acquisition of body armour and truck maker Armor Holdings for $4.1 billion in 2007.

Rival European Aeronautics Defense and Space (EADS), the parent of Airbus, bought emergency response firm PlantCML for $350 million in April.

As for Finmeccanica, it completed the £61.6 million ($121 million) takeover of UK software and engineering services company Vega Group Plc this year. In 2004, Finmeccanica bought the 50 per cent of AgustaWestland that it didn't already own from GKN Plc. The manufacturer also entered a defence-electronics partnership with BAE Systems Plc the following year and has since taken over the venture.

For the DRS deal, Finmeccanica, Europe's No. 4 aerospace and defense group by market value, said it would pay $81 a share in cash. This represents a premium of 32 per cent over DRS's 30-day average stock price, and a 4.9 per cent premium over yesterday's close. Post acquisition, Finmeccanica plans to delist DRS, which will become a wholly owned subsidiary.

Finmeccanica, 34 per cent owned by the Italian government, will pay for the purchase through a loan to be repaid through a capital increase, a bond issue and an asset sale. It also plans a stock market flotation for power equipment unit Ansaldo Energia.

Finmeccanica also posted encouraging quarterly results, reporting a net income of €119 million ($185 million), up from €13 million in the first quarter of last year, boosted by capital gains from the disposal of stock in STMicroelectronics NV. Excluding the proceeds from the share sale, net income was €72 million, the Rome-based company said in a statement. Earnings before interest, tax and amortization (EBITA) were up 13 percent at  €133 million.

Finmeccanica predicted in March that sales will gain by as much as 11 per cent this year and raised its 2008 earnings forecast of growth for adjusted earnings before interest and tax to as much as 19 per cent. Adjusted EBITA may rise to €1.3 billion to €1.42 billion in 2009, with revenue of €15.1 billion to €15.9 billion, it said.

The company added that it planned to buy 11.1 per cent of Eurotech SpA for €18.1 million, or €4.60 a share. Eurotech produces mini computers, or nano PCs, for use in the defence, aerospace and transport industries. The company had revenue in 2007 of about €100 million.