Italy knocks back Safran's $1.8 billion Collins Aerospace deal

By Sudip Kar-Gupta and Giuseppe Fonte

PARIS/ROME (Reuters) -Italy has knocked back French group Safran's planned $1.8 billion purchase of the flight control systems arm of Collins Aerospace, with Italian government sources citing concerns over supplies to armed forces and contracts for the Eurofighter programme.

Safran said on Monday that Rome had vetoed its acquisition of Microtecnica, Collins Aerospace's Italian subsidiary, using its "golden power" to halt the takeover of what it deems a strategic asset.

The move by Giorgia Meloni's government is a rare one against a European Union company. Safran's biggest shareholder is the French government, with an 11.2% stake.

"Safran remains committed to the transaction and is working with all parties to determine the appropriate next steps," Safran said in a statement.

A Safran spokesperson declined to comment further.

The proposed deal to buy the flight controls business of Collins Aerospace, which is owned by Raytheon, had been announced by Safran in July.

However, Safran did not provide sufficient guarantees that it would preserve production lines in Italy, an Italian government source said, asking not to be named owing to the sensitivity of the matter.

The source added that Italy had also held talks with the German government about the Safran deal and that Germany had highlighted the risk that the deal could affect supplies for the Eurofighter and Tornado jet fighter programmes.

Other officials in Meloni's office said the veto was also due to concerns the deal could disrupt supplies to the country's armed forces.

A French finance ministry source said Italy had not consulted with Paris before blocking the Microtecnica deal, noting the company was currently owned by a U.S. company.

The French source called the lack of discussions between two European partner countries "regrettable."

"The case looks interesting as (Italian) vetoes against buyers from EU and NATO countries are rare," said Francesco Galietti, founder of political risk firm Policy Sonar.

Meloni is due to travel to Berlin this week to seal a German-Italian cooperation deal, including on defence and technology. Economy Minister Giancarlo Giorgetti is due to hold talks with his French counterpart Bruno Le Maire on Tuesday.

Safran Chief Executive Olivier Andries told the Financial Times that the group was surprised by the decision and had not held discussions with the Italian or German governments.

"They assume the worst about our intentions that we will not fairly support or prioritise the Eurofighter," he said.

"This is somewhat ironic since we are already suppliers of the Eurofighter and of other Italian defence programmes via various subsidiaries."

The Eurofighter is made by a European consortium composed of Airbus, BAE Systems and Leonardo and competes with the French-built Dassault Rafale for export orders.

Since the introduction of the so-called golden powers in 2012, Italian government authorities have mainly vetoed acquisitions of domestic firms by Chinese and Russian companies.

(Reporting by Sudip Kar-Gupta and Giuseppe Fonte; additional reporting by Leigh Thomas; editing by Silvia Aloisid, David Goodman and Jonathan Oatis)