German defence giant Rheinmetall Group signed an agreement, on Friday, with local aerospace and defence group Denel, which marked Rheinmettal's intention to take a 51% equity stake in Denel Munitions.

Denel group executive Lana Kinley said that it would still be a few months before the deal came into effect as it was still subject to approval from the competition authorities, and was still tied to various suspensive conditions that had to be resolved.

Both shareholders would be contributing to the transaction, however, Kinley did not disclose the amounts. The name for the new consolidated business was likely to be Rheinmettall Denel Munition.

Kinley commented that the transaction was "another step in our [Denel's] turnaround strategy" and that from a financial and operational perspective there had been some improvement, thanks, in part, to equity transactions such as this.

Denel Munitions CEO Monwabisi Kalawe said that the equity partnership had been a "natural progression in the growing relationship" between the two companies.

Kalawe explained that, through the transaction, Denel Munitions would benefit from further market growth in North Atlantic Treaty Organisation countries, consolidation and improvement of production at its operations, transfer of technology and skills development and training.

Kalawe noted that reciprocally, Rheinmettal would gain from Denel's ‘highly reputed' artillery systems, modular charge systems and propellants, and its establishment in South American, Middle Eastern and Far Eastern markets.

The Denel Munition facilities were said to be running at low utilisation levels and this was one of the key drivers of the partnership.
Kinley said that Denel Munitions was currently operating off seven sites with very high fixed costs and that the transaction would see a consolidation of these operations sizing them down to about three sites. When asked about the potential for job losses, Kinley said that the intention was to grow the business, rather than have to retrench employees.

She noted that Denel had not yet concluded its turnaround strategy as it was still a loss-making business and it would take some two to three years before it achieved a "break-even" financial status.

Kinley and Rheinmetall Waffe Munititon president Armin Papperger signed the agreement on Friday in Tshwane.

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