May 13 (Bloomberg) -- Finmeccanica SpA, Italy's biggest defense company, agreed to buy U.S. military electronics maker DRS Technologies Inc. for $4 billion (2.58 billion euros) to win Pentagon contracts.

Finmeccanica offered $81 for each DRS share, according to a press release issued early today in Rome. The offer was 4.9 percent more than yesterday's DRS closing price in New York of $77.19 and 27 percent more than the shares were trading before the Wall Street Journal reported the possible combination with Parsippany, New Jersey-based DRS on May 8.

Finmeccanica and other European defense contractors have sought work and acquisitions in the U.S., where military spending has grown faster than in their home markets. BAE Systems Plc, Europe's largest weapons maker, bought Jacksonville, Florida-based Armor Holdings Inc., the biggest maker of armor for Humvee transports, last year for more than $4.1 billion. Including $1.2 billion in net debt, Finmeccanica will pay $5.2 billion.

``DRS would give Finmeccanica a good footprint to build itself in the U.S. defense market,'' wrote Colin Crook, an analyst for UBS AG, in a note sent to clients on May 9.

DRS makes flight recorders, sensors and thermal-imaging devices that are used on U.S. military helicopters and ships.

``This transaction would boost Finmeccanica's defense electronics capabilities and provide an avenue for them to migrate their technology into the U.S.,'' wrote Rupinder Vig and Scott Babka, analysts for Morgan Stanley, in a May 9 note. ``The deal would be mildly dilutive'' for Finmeccanica's shareholders, they said.

Government Stake

Finmeccanica, based in Rome, is controlled by the Italian government with a 32 percent stake. Finmeccanica makes carbon- fiber frames for Boeing Co.'s 300-seat 787 Dreamliner, and its AgustaWestland helicopter division has a supply contract with Lockheed Martin Corp. for the U.S. presidential fleet. The Italian company said in November it has about 3 billion euros to spend on acquisitions and has an investment target of 4.2 billion euros through 2010.

Finmeccanica will pay for the acquisition with a bank loan that it plans to pay back by selling shares and bonds. It also plans to sell its AnsaldoEnergia unit to the public.

The deal has been approved by the boards of both companies and is expected to close in the fourth quarter. Finmeccanica will recommend that DRS operate under a special security agreement, with its own board of directors comprised primarily of U.S. citizens.

Other Acquisitions

Earlier this year, Finmeccanica completed the 61.6 million-pound ($121 million) takeover of U.K. software and engineering services company Vega Group Plc. In 2004, Finmeccanica bought the 50 percent of AgustaWestland that it didn't already own from GKN Plc. The manufacturer also entered a defense-electronics partnership with BAE Systems the following year and has since taken over the venture.

Chief Executive Officer Pier Francesco Guarguaglini is also confident he will win a $15 billion competition to supply a rescue helicopter to the U.S. Air Force, which was reopened last year after Boeing initially won the contest in 2006. Lockheed and AgustaWestland were partners in the original bidding.

Guarguaglini is reducing the company's reliance on the domestic market by seeking more customers outside Italy. The company wants revenue outside Italy and the U.K. to account for about 60 percent of total sales in 2010, from 51 percent last year.

2007 Sales

Finmeccanica had sales of 13.4 billion euros in 2007, up 7.7 percent from a year earlier. Revenue may increase by as much as 11 percent this year, Finmeccanica said. Profit excluding one-time gains or costs increased 49 percent to 503 million euros.

Finmeccanica shares have risen 16 percent since Jan. 23, when they touched the lowest in more than a year. The company has a market value of 9.08 billion euros.

DRS shares rose 16 percent, the most since July 2004, on May 8 when the company said it ``is engaged in discussions contemplating a potential strategic transaction,'' following the Journal report. At the time, DRS didn't name a potential suitor.

Finmeccanica was advised by Lehman Brothers Holdings Inc. Bear Stearns & Co and Merrill Lynch & Co. served as advisers for DRS. Arnold & Porter LLP was the legal adviser for the Italian company, while DRS was served by Skadden, Arps, Slate, Meagher & Flom LLP.

To contact the reporters on this story: Marco Bertacche in Milan at mbertacche@bloomberg.net; Courtney Dentch in New York at cdentch1@bloomberg.net.

Last Updated: May 12, 2008 21:14 EDT