Strengthening Franco-Belgian Cooperation: The Cockerill Acquisition of Arquus

01/18/2024
By Pierre Tran

Paris – Volvo, a Swedish truck builder, said Jan. 15 it is taking a hit of some 900 million Swedish crown ($86 million) as part of the planned sale of its French military unit Arquus to John Cockerill, a Belgian maker of turrets for armored vehicles.

“Volvo Group has signed an option agreement with John Cockerill Defense which gives the Volvo Group the right to sell Arquus after mandatory consultations with staff representative bodies,” the Swedish company said in a statement. Staff consultation, required under French law, is being held in the first quarter of this year.

“As a result of the option agreement, the Volvo Group’s operating income will be negatively impacted by approximately SEK 900 M in the fourth quarter of 2023,” Volvo said.

Cockerill expects to pay some €300 million for Arquus, François Michel, chief executive of the Belgian company told business website La Tribune Jan. 17, with the final price depending on performance of the French company over 18-24 months.

The planned Belgian acquisition of a French company will be the latest European move in cross-border consolidation and cooperation in the land weapons industry.

KNDS, a Franco-German joint venture, said Dec. 13 it had agreed a cooperation deal with the Italian company Leonardo, which includes service of the German-built Leopard 2 A8 tank for  the Italian army. That agreement also opened the way for Italy to join the main ground combat system (MGCS), a planned system of tank and unmanned vehicles for France and Germany.

“The aim is to create a truly European defense group, and moreover to cooperate closely in the domain of defense electronics for land systems,” KNDS said in a statement, which referred to a “strategic alliance” with the Italian partner company.

France Sends Weapons to Ukraine

The importance of land weapons could be seen with the French armed forces minister, Sébastien Lecornu, saying Jan. 18 on France Inter radio that Ukraine has bought six Nexter Caesar artillery pieces, for €3 million-€4 million each, to be delivered soon.

The minister called on allies to pay for the balance of the total 78 truck-mounted guns to be built this year. That sharply higher output reflects the halving of time to build the 155 mm, 52 caliber cannon.

France will also send to Kyiv 40 MBDA Scalp cruise missiles, 50 Safran AASM powered smart bombs a month, and 3,000 artillery shells a month, he said.

The armed forces ministry in February last year commissioned two reports in response to the Russian invasion of Ukraine, with senior procurement officer Monique Legrand-Larroche  examining production of Caesar artillery, and former procurement chief Laurent Collet-Billon looking into faster output of the Mistral man-portable, air-defense missile and 155mm shell.

Arquus Revisited

Sales of Arquus accounted for one percent of Volvo’s 2022 sales, the Swedish company said.

That one percent compares to 1.5 percent in 2016, when Volvo put the French unit up for sale, then taking it off the market as bids were seen as too low. Rothschild acted as adviser to Volvo on the tender for Arquus.

John Cockerill Defense, a unit of the Belgian John Cockerill group, builds turrets for light  armored vehicles. Cockerill previously traded under the name of Cockerill Maintenance & Ingénierie (CMI), and was among companies which made an offer to acquire Arquus in 2016. Volvo rejected the offers in 2017, seen as too low.

“The expected acquisition of Arquus by John Cockerill is a transformative step for the European defense sector in the field of light tanks,” Michel, chief executive of the Cockerill group, said in the Jan. 15 company statement.

“The combined offer of light tank turrets and vehicles from John Cockerill Defense and Arquus will generate important synergies that will result in more innovative and more competitive vehicles to equip land forces around the world, starting in Belgium, France, and other partner countries,” Cockerill said.

The negotiations are on an exclusive basis, the Belgian company said.

Volvo said the SEK 900 million hit on earnings will be reported under “group functions & other,” and will be excluded from adjusted operating income. The acquisition will require government approval.

Earn Out Clause

“Everything depends on a number of factors but the acquisition price could doubtlessly be around €300 million,” Michel said in La Tribune. “But this price could move depending on the economic health of Arquus in the next 18-24 months. We have effectively an ‘earn out’ clause, which is significant.”

Cockerill expects to complete the Arquus deal in the third quarter, he said, and the acquisition is part of the company’s expansion plan, which saw the launch last year of a joint venture in hydrogen alternative energy.

Volvo has helped improve the quality of Arquus’ factories and technical expertise since 2017, but has not allowed the French company to sell into export markets, he said.

An industrial source said the acquisition is essentially a done deal, with Cockerill getting a “low price,” around half the value of offers made in the 2016 competition.

An analyst said the acquisition price could be around €250 million, which compared to rival bids of €400 million-€420 million from Cockerill and KNDS in 2016-17.

The Swedish company never quite knew what to do with Arquus, which was part of its 2002 acquisition of Renault’s trucks business, Renault Véhicules Industriels (RVI), the analyst said. That led to Volvo putting up its government sales unit for sale in 2016.

Volvo cancelled the tender in 2017 as the offers failed to hit the €500 million-€700 million the Swedish company considered to be fair value for the military vehicle business.

The then French government made it clear in the 2016 competition that offers from non-European companies, such as General Dynamics, and venture capital funds, such as Advent, were unwelcome.

Volvo and John Cockerill were not available for comment. Nexter declined comment.

Nexter is a unit of KNDS, a Franco-German company 50/50 held by the French state and the German Bode-Wegmann family. France holds a golden share in Nexter, for protection of sensitive technology and national sovereignty.

Sales Target €1 billion

Cockerill expects the acquisition to deliver combined annual sales of €1 billion and employ 2,000 in 2026, Michel said. That compares to Cockerill’s annual sales of some €400 million based on an average over five years, and 2022 revenue of a little less than €200 million.

“In truth, we are hoping for a lot more,” he said. “It only takes winning one or two big emerging (market) contracts to beat our conservative forecast. We prefer to be surprised on the upside rather than on the downside.”

There were “absolutely” no plans for management changes or plant closures, he said. Arquus was “under-used” due to lack of exports, and its workload would rise once that was tackled.

The Belgian company expects acquisition to boost exports into emerging markets, he said, with modern packages of chassis and turrets to update light armored vehicles, including firepower to hit drones. Strong growth is seen in upgrading Russian vehicles, with nations in emerging markets no longer able to rely on Russian suppliers.

The company seeks to offer packages of co-development of chassis and turrets in emerging markets, he said, with foreign sales allowing lower cost of light tanks for European clients.

Arquus employs 1,200 in France.

Boosts Belgian Ties

Belgium and France have strong “state and industrial” relations, said Charles Baudouin, a retired French general who led the army’s technical section working on the Scorpion modernization program.

The two allied nations have “highly integrated and structural” links, he said, as Belgium has placed a large order worth €1.6 billion in the Scorpion program and Caesar artillery, and wants to join development of the French Véhicule Blindé d’Aide à l’Engagement (VBAE), a project for a light armored vehicle to replace the Véhicule Blindé Leger (VBL) scout car.

John Cockerill Defense is a major subcontractor on a “pre-design” architecture study on the VBAE, with Arquus as lead contractor and Nexter co-contractor.

FN Herstal, a Belgian manufacturer, will supply a remote control machine gun on the turret of an upgraded XLR version of the Leclerc tank for the French army.

Belgium has ordered 60 Jaguar combat reconnaissance vehicles, 382 Griffon troop carriers, and nine Caesar new generation cannon under its Capacité Motorisée (CaMo) program. The armored vehicles, equipped with software-defined radio and SICS information network, are due for delivery in 2026.

Belgium has joined as observer on the European future combat air system (FCAS), seeking to win work for Belgian aerospace companies on the new generation fighter (NGF). The French prime contractor, Dassault Aviation, has criticised that move, following Belgium’s order for the Lockheed Martin F-35 fighter rather than the French-built Rafale.

Italy Reaches Out

The Italian company Leonardo seeks a third of the MGCS European system for a new tank and unmanned vehicles led by the Franco-German joint venture KNDS, media reports said.

That pursuit of industrial partnership underpins the cooperation agreement signed last month, which includes the opening of engineering and production centers in Italy, as well partnership in European export projects.

The three-nation cooperation includes Leonardo developing, building and supporting the  Leopard 2 A8, with the Italian army seeking an order for 133 units, La Tribune reported .

The MGCS is due to be operational in 2040-45, having been pushed back from 2035, when it would have replaced the French Leclerc tank and German Leopard 2.

The new generation tank, equipped with artificial intelligence, and laser-armed unmanned vehicle are due to work with an extended information network under the Titan project, which would hook the land system up with the FCAS operated by the French air and space force, as well the navy’s planned aircraft carrier.

The featured photo: John Cockerill Group vehicle photo is to be found on their website.

In announcing the acquisition, François Michel, CEO of the John Cockerill Group noted: “The expected acquisition of Arquus by John Cockerill is a transformative step for the European defense sector in the field of light tanks. The combined offer of light tank turrets and vehicles from John Cockerill Defense and Arquus will generate important synergies that will result in more innovative and more competitive vehicles to equip land forces around the world, starting in Belgium, France, and other partner countries.”