May 13 (Bloomberg) -- Finmeccanica SpA, the Italian defense company that agreed to buy DRS Technologies Inc. in the U.S., said profit surged in the first quarter, helped by one-time gains from the sale of a stake in a chipmaker.

Net income rose to 119 million euros ($185 million) from 13 million euros in the first quarter of last year, boosted by capital gains from the disposal of stock in STMicroelectronics NV. Excluding the proceeds from the share sale, net income was 72 million euros, the Rome-based company said in a statement.

Finmeccanica is expanding in the U.S., where military spending has grown faster than in Europe, allowing it to maintain costs in dollars. U.S. defense spending will rise 7.5 percent to $515 billion in fiscal 2009, the 11th consecutive increase, based on a funding request that President George W. Bush sent to Congress Feb. 4.

``The strategic significance of this deal is huge,'' said Patrizio Pazzaglia, who helps manage the equivalent of $400 million at Bank Insinger de Beaufort NV in Rome. ``We expect a negative impact in the short term, mainly due to the fact that the DRS acquisition means the company will have to raise capital.''

Italy's biggest defense company said earlier today that it had agreed to buy U.S. military electronics maker DRS for $4 billion to expand its U.S. business and pursue more contracts with the Pentagon. The company will assume $1.2 billion of net debt of Parsippany, New Jersey-based DRS. Finmeccanica offered $81 in cash for each DRS share, 4.9 percent more than yesterday's DRS closing price in New York.

The acquisition will help Finmeccanica expand its defense- electronics business in the U.S. market, Chief Executive Officer Pier Francesco Guarguaglini said in an interview in London today. ``We'll raise targets after the acquisition,'' he added.

The company predicted in March that sales will gain by as much as 11 percent this year and raised its 2008 earnings forecast of growth for adjusted earnings before interest and taxes to as much as 19 percent. Adjusted Ebit may rise to 1.3 billion euros to 1.42 billion euros in 2009, with revenue of 15.1 billion euros to 15.9 billion euros, the company said.

Military Helicopters

DRS makes flight recorders, sensors and thermal-imaging devices used on U.S. military helicopters and ships. Finmeccanica owns AgustaWestland, which has a contract with Lockheed Martin Corp. to supply the U.S. presidential helicopter fleet.

DRS posted fiscal 2007 revenue of $2.82 billion. The company, with a global workforce of 10,000, pioneered the use of passive sonar to allow Navy surface ships to detect submarines.

``Finmeccanica has contracts in the U.S. where defense spending is growing,'' Massimiliano Romano, an analyst at Concentric Italy in Milan, said in an interview with Bloomberg Television. ``To be in that market you've got to be in there with both feet, so we see this purchase as very positive.''

Finmeccanica fell 95 cents, or 4.5 percent, to 20.41 euros, the most since Aug. 10. The stock has declined 7.1 percent this year, leaving Finmeccanica with a market value of 8.67 billion euros. The acquisition is positive ``but inevitably dilutive,'' Milan-based broker Euromobiliare Sim wrote in a note sent to clients today.

The company also said today that it planned to buy 11.1 percent of Eurotech SpA for 18.1 million euros, or 4.60 euros a share. Eurotech produces mini computers, or nano PCs, for use in the defense, aerospace and transportation industries. The company had 2007 revenue of about 100 million euros.

Target

The two purchases mean that Finmeccanica has almost reached its investment target for the 2008-2010 period of 4.2 billion euros announced in November. Finmeccanica said it will fund the DRS acquisition with a bank loan that it plans to pay back by selling shares and bonds. It also plans to sell part of its Ansaldo Energia unit to the public.

Finmeccanica is controlled by the Italian government with a 32 percent stake. The company makes carbon-fiber frames for Boeing Co.'s 300-seat 787 Dreamliner and naval helicopters for the U.S. armed forces.

Revenue rose 6 percent in the first quarter to 2.9 billion euros, led by growth at its aeronautics unit. Earnings before interest and taxes, excluding goodwill impairments, amortization and one-time gains or costs, gained 13 percent to 133 million euros, in line with the median estimate of three analysts surveyed by Bloomberg News.

-- With reporting by Courtney Dentch in New York, Steven Rothwell in London, Alessandra Tamburini in London, Flavia Rotondi in Rome and Alessandra Migliaccio in Milan. Editors: Dan Liefgreen, Tom Lavell

To contact the reporters on this story: Marco Bertacche in Milan at mbertacche@bloomberg.net; Michele Seghizzi in Milan at mseghizzi@bloomberg.net

Last Updated: May 13, 2008 12:22 EDT