KNDS IPO: Record Orders, Auto Plants, and a Golden Share for Berlin

KNDS lists July 13 with dual government ownership (80%), no fresh capital, €33bn backlog, capacity crunch, and a US howitzer award decision. Valuation discounted to €15bn.

The defence contractor KNDS is heading for a July listing with a full order book of €33bn, a pair of powerful shareholders determined to keep the company on a short leash, and a capacity crunch so severe that management is eyeing former car plants for expansion. The IPO, set for 13 July in Frankfurt and Paris, is an unusual one: not a single euro of fresh capital will be raised. Instead, the existing owners are selling down their stakes, with the German state becoming the biggest single buyer.

Berlin has authorised its state-owned development bank KfW to acquire a 40% stake at a cost of up to €7.2bn — the same size holding that France will retain after the float. The two governments will together own 80% of the company, with the remaining 20% earmarked for institutional investors. Retail buyers need not apply. A ten-year lock-up agreement prevents either state from quickly exiting, and any sale that would drop a stake below 30% requires the other’s consent. To cement its influence, Germany has also secured a golden share in KNDS’s domestic subsidiaries, giving it a veto over strategic decisions such as technology transfers.

The structure has already forced a steep discount on the company’s valuation. Investment banks had initially pencilled in a figure of €25bn, but management is now targeting a maximum of €15bn. The dual government grip, complete with mutual veto rights, leaves minority shareholders with little say over strategy. The trade-off, Berlin argues, is stability — especially for major joint projects such as the future Main Ground Combat System with France.

Operationally, KNDS is running at full tilt. Revenue hit €4.4bn last year and the operating margin came in at a healthy 15%. The order backlog has swelled to a record €33bn, and demand is outstripping the company’s ability to build. Production of Leopard 2 tanks and howitzers cannot keep pace. In response, management is in talks to acquire former automotive factories — including sites once run by Volkswagen in Osnabrück and Mercedes-Benz in Ludwigsfelde — to add assembly lines. Norway, for example, is fitting its new Leopard 2 fleet with the Trophy active protection system, which KNDS produces through a joint venture.

A potential catalyst is looming during the subscription period. The US Army is expected to decide in July on a contract for up to 500 howitzers, pitting a KNDS-Leonardo DRS team against rivals such as Rheinmetall. Winning that deal would open the world’s biggest defence market to the Franco-German group and could drive heavy demand for the shares on offer.

When trading begins on 13 July, the outcome will depend on whether the lead banks have found enough institutional buyers to fill the order book. A US howitzer award before the first price fix would comfortably push the stock toward the top end of the valuation range. For a company that is raising no money and handing control to two states, the near-term share-price narrative rests largely on a single transatlantic bid.