Leonardo logo and stock graph seen displayed in this illustration taken, May 3, 2022.
Leonardo logo and stock graph seen displayed in this illustration taken, May 3, 2022. Reuters / DADO RUVIC

Leonardo's U.S.-based electronics unit, DRS, has agreed to buy Israel's RADA Electronic Industries, the Italian defence group said on Tuesday, paving the way for the combined business to list on the Nasdaq stock exchange.

Shares in Leonardo rose as much as 9.7% on the news, making it the top performer in Milan's blue-chip index.

Under the agreement, DRS will acquire 100% of the Israeli maker of tactical radar equipment, with current RADA shareholders then taking a 19.5% stake in the combined business.

The all-stock takeover comes at a time when the war in Ukraine and the vulnerability to drone attacks highlights the need for modern force protection systems, DRS Chief Executive William J. Lynn III told analysts.

"We see international expansion opportunities through our combined global footprint," Lynn said, adding the ongoing conflict "was likely to motivate European countries to move towards acquiring this critical force protection assets."

DRS will pay a premium of roughly 20% over the last 45 days of trading to acquire RADA, Leonardo's CFO Alessandra Genco added, without providing any other financial details of the deal.

Brokers Bestinver and Banca Akros have put a valuation on DRS of between $2.1 billion and $2.4 billion, but Leonardo executives said any figures being floated around did not include proceeds from already agreed deals to sell DRS' satellite communications business GES and its stake in sonar company AAC.

At the closing of the transaction, expected in the fourth quarter of this year and forecast to have a minimal impact on Leonardo's 2022 guidance, DRS will be listed on the Nasdaq and Tel Aviv stock exchanges, Leonardo added.

Leonardo postponed an initial public offering (IPO) of a minority stake in DRS last year, citing uncertainty over U.S. defence spending and investor concern about rising interest rates.

Lynn said he did not expect any regulatory hurdles for the deal, adding he was confident it would be welcomed by the U.S. government.

($1 = 0.9467 euros)