GIAT Industries / Nexter Systems

Founded in 1973, GIAT Industries [Groupement des Industries de l'Armée de Terre] was renamed to Nexter in 2006. On 01 July 2014 the French arms manufacturer Nexter signed a letter of intent with its German rival Krauss-Maffei for the merger of the two companies that both produce tanks and armored vehicles. The merger must be in place in early 2015 and would create a Franco-German arms company with over 6,000 employees. On 01 July 2014 in Paris, the owners of the French and German companies signed a Heads of Agreement to this effect. The alliance of the two groups under the umbrella of a joint holding company created a Franco-German defence technology group with a current annual turnover nearing 2 billion euro, an order book of around 6.5 billion euro, and more than 6,000 employees.

KMW, Nexter and their owners viewed this step as decisive for the consolidation of the defence technology industry in Europe. Their new strategic alignment made it possible to retain jobs and skills in the heart of the European Union. The product portfolios of the two companies and their regional presences on the world market complemented each other. The alliance of KMW and Nexter created a group with the momentum and innovative force required to succeed and prosper in international competition. In addition, it offered to its European and NATO customers the opportunity of increased standardisation and interoperability for their defence equipment, with a dependable industrial base.

Nexter S. A. was in the sole ownership of the French State holding company GIAT Industries S. A.; Krauss-Maffei Wegmann GmbH & Co. KG was in the sole ownership of Wegmann GmbH & Co in Kassel. For the intended unification of the two companies, the current sole owners intended to contribute their shares into a newly incorporated joint holding company. They would each receive 50 percent of the shares of this holding company, which would become the sole shareholder in KMW and Nexter. The governance of the holding company would take into account the balance between the two shareholders, who will be reference investors in the new combined group with a long term industrial perspective.

The target date for the alliance was early 2015. In the meantime, the two future partners will both be subject to a process of due diligence. The alliance project will be subject to legal and customary regulation approvals.

GIAT Industries of France, created in 1990 out the reorganization of state arsenals, was long a European leader in land defense armament. The Groupement Industriel des Armaments Terrestres (GIAT) was the industrial arm of the government organization tasked with testing and manufacturing ground combat equipment, the Direction des Armements Terrestres (DAT). The equipment it produces ranges from hand-held weapons to main battle tanks. Giat is an example of an organization beset with all the problems of inefficiency common to a government-run monopoly.

In France, privatization was a relatively recent development. A number of steps were taken, including fully privatizing (Matra), partially privatizing (Sextant Avionics), and converting a government-operated manufacturer (regie directe) to a "public sector" company (GIAT). In July 1990, the Army arsenal, or Industrial Group of Land Armaments (GIAT), was converted through legislation into a nationalized company called GIAT Industries. Although the French Government still owns nearly all the firm’s capital and retains considerable influence, GIAT has gained financial autonomy, access to capital markets, and decision-making authority. The new company set up a personnel department and sales office, negotiated collaborative agreements with a network of international partners (including the British firm Vickers and the German firm Rheinmetall), and diversified its industrial activities into new fields, such as aircraft cannon pods and subcontracts for the production of aircraft parts. Nevertheless, the fact that the more than 11,000 GIAT workers retained their privileged job status within the civil-service system still limited the firm’s flexibility.

Demand for military vehicles dropped sharply since the end of the Cold War. France’s GIAT reduced its workforce from 17,000 in 1991 to 7,000 in 2001. France’s state-owned GIAT is that country’s lone producer of military combat vehicles. In the early 1990s sectoral consolidation took place, with the grouping in France of virtually all major ordnance and army weapon activities under GIAT. The ownership structure of the military vehicles industry in Germany and France made international acquisitions difficult. Two families hold controlling stakes in KMW and Rheinmetall, which serves to prohibit hostile takeovers and reduce the pressure for maximizing shareholder value. In France, state-ownership made the acquisition of GIAT all but impossible. Only BAE is a serious player in transatlantic mergers in the land vehicles area. Sectoral consolidation did occur in the transnational dimension, with GIAT's acquisition of Belgium's FN Herstal and Poudr6ries Rdunies de Belgique (PRB).

GIAT was long a relic of the old system, not only state owned but state operated, concentrating on meeting the needs of the French MoD in army vehicles and munitions. With the decision to convert GIAT to a public-sector company (100 percent state owned but privately managed), implemented in July 1990, GIAT "came to life," with extensive efforts both to consolidate the fragmented French market in vehicles and munitions and to build transnational links. GIAT began consolidating most of the French army munitions activities through its acquisition of Luchaire (heavy caliber munitions), Matra Manurhin Defense (medium caliber), and the French Munitions Company (small caliber). For armored vehicles, GIAT entered into an agreement with two of its principal French competitors, Creusot-Loire and Renault Whicules Industriels (RVI), to create a jointly owned company to manage current and future tracked and wheeled vehicle programs. GIAT also began talks with Usinor Salicor (Creusot-Loire's parent) about a link-up in the area of light armored cars and tank turrets.

Giat was in near bankruptcy in 1996. One contributing factor was a large order from the UAE for Giat’s LeClerc tanks. The fixed price contract was signed with US dollars as the exchange medium at a fixed exchange rate. Dollar devaluation against the franc forced Giat to absorb the loss. Giat is involved a major reorganization to improve its financial performance. This would include closure or divestiture of five industrial sites and reducing 40 percent of the workforce.

Traditional competitors Giat industries and Vickers plc (UK) were creating a joint venture company to bolster their flagging armored vehicle sales. The new company was to focus on the development and production of main battle tanks and the modernization of existing products. Vickers had been operating at a profit but was faced with the lack of further orders to produce its Challenger tank series after 2002. Given the decreasing markets for the two rival main battle tanks, some sort of consolidation seemed increasingly inevitable.

In parallel, Giat was gradually withdrawing from the small arms sector, concentrating its efforts on armored fighting vehicles and heavy/medium caliber artillery. As a part of its restructuring plan, Giat halved its workforce and reduced its sites from fourteen to nine. Giat intends to concentrate on defense products with the exception of a few specific dualuse technologies that it intends to try and commercialize.

Nexter Systems has been in the defence industry for over 400 years. It takes pride in its established track record of delivering high-quality, state of the art equipment on time and on budget to customers around the world. Every year, Nexter invests 16% of its annual profits in research and development making it a technological leader in the defence industry. With three complementary business clusters, Nexter Group specialises in a wide range of land-defence systems. In addition to land forces, Nexter address also the requirements of air and naval forces. Working in close collaboration, the Group's three business clusters offer a full range of Products and Services, from systems design to operational maintenance.

Nexter's strategy is based on several guiding principle. It strives to enhance continuously its manufacturing plants, seeking to improve responsiveness, performance and environmental safety. Through a research and development policy that welcomes partnerships, Nexter adapts its product line to constantly changing threats. Its entire team is committed to achieving customer satisfaction and upholding company values. A cohesive, united and competitive group.

The Group is anchored by its internationally recognized skills carried over from the former Giat Industries, and by the consistent investment in research and development that it has pursued for many years to offer to its customers solutions that meet their needs. The primary company, Nexter Systems, has several specialised subsidiaries, which are organised by business lines. This organisation of the Group around three complementary business lines allows each activity to optimise its own development, while simultaneously ensuring internal synergies and Group unity.

Nexter Systems comprises the bulk of the Systems Division, which also includes Nexter Training, a subsidiary created in 2008 to develop GVT® (Generic Virtual Training, an innovative concept in computer-assisted training) software, and CTA International, a joint venture with BAE Systems. Systems Nexter Systems (weapons and armoured systems) comprises the bulk of the Systems Business line, which also includes Nexter Training, a subsidiary created in 2008 to develop GVT® (Generic Virtual Training, an innovative concept in computer-assisted training) software, and CTA International, a joint venture with BAE Systems (40 mm CTA weapon system).

The Munitions Business line consists of Nexter Munitions, which is specialised in artillery, tank and medium-calibre munitions. Nexter Munitions is also in partnership with European missile manufacturers in the areas of warheads, safety systems and pyrotechnic components.

The Equipment Business Line includes the subsidiaries Nexter Electronics (electronics for extreme conditions) and Nexter Mechanics (high precision and special mechanics). In 2008, the business line acquired from Giat Industries the following subsidiaries: NBC-Sys (individual and collective protection systems against nuclear, biological and chemical attacks), Euro- Shelter (tactical shelters, mobile logistics systems, mobile medical systems) and Optsys (optomechanical and optoelectronic systems for military use).

Despite the uncertain economic climate, which, in Europe, is also characterized by restricted national budget policies, the Group met its objectives for 2012 in terms of orders, income and profitability. The Nexter Group's signed orders total €862M, with exports accounting for 75% of this sum. This reflects the Group’s ability to place products and services from a renewed range of weapons systems and munitions on several export markets. This year, three major orders added nearly €535M to the order book. By including conditional work packages from commercial contractual commitments in progress, the Nexter Group’s order book totals €2.8B, the equivalent of three years’ worth of business.

The Group’s consolidated revenue totals €742M, which is in line with the objectives the Group set for the 2012 financial year. Again this year, the Group's business is marked by the fulfillment of contractual commitments, as testified by maintaining a very strong DGA quality ranking. For the seventh consecutive year, the Nexter Group has posted a consolidated operating margin that is 10% higher than the Group’s revenue, evidence of a robust economic model. This performance attests to the Group’s ability to manage contractual commitments. The Nexter Group’s consolidated net profit totals €93M. This figure takes into account the high share of spending earmarked for research and development for the range of products and services (nearly 18% of consolidated revenue), approximately half of which is self-financed.