Despite the late entrance in covering this transaction is has quickly become one of the more difficult to assess, particularly with respect to the Exon-Florio review, in recent memory. On the positive side, the CFIUS has shown little resistance to deals involving military products/services, regardless of the national security implications, real or perceived. A large part of this must be attributed to the fact that the more significant non-U.S. acquisitions have involved the change of ownership to companies domiciled in "friendly" countries, as was the case in the Armor / BAE Systems deal last year. And although some recent deals involving sensitive government information (military and non-military) have encountered CFIUS delays -- see CPS-Reed -- the overriding factor currently seems to be, again, the country of domicile for the acquiror. In this particular transaction, Finmeccanica as an Italian entity must be considered, in general terms and with respect to the CFIUS, as an acceptable entity in terms of non-U.S. ownership.

On the negative side, the products and services which DPS offer are extremely sensitive in terms of U.S. defense operations. In fact, this is arguably the most complex situation in the CFIUS' history with respect to critical systems that are utilized directly in battle technologies and operations. DRS's brief description of its products/services is quite telling in this particular aspect of the proposed transaction:

We are a leading provider of thermal imaging devices, combat display workstations, electronic sensor systems, power systems, rugged computer systems, air combat training systems, mission recorders, deployable flight incident recorders, environmental and telecommunication systems, aircraft loaders, military trailers and shelters, and integrated logistics support services. Our products are deployed on a wide range of high-profile military platforms, such as DDG-51 Aegis destroyers, M1A2 Abrams Main Battle Tanks, M2A3 Bradley Fighting Vehicles, OH-58D Kiowa Warrior helicopters, AH-64 Apache helicopters, F/A-18E/F Super Hornet and F-16 Fighting Falcon jet fighters, F-15 Eagle tactical fighters, C-17 Globemaster II and C-130 Hercules cargo aircraft, Ohio, Los Angeles and Virginia class submarines.."

These services are, to put it as mildly as possible, crucial to effective combat operations, so the very concept of non-U.S. ownership -- particularly under the current military situation -- is almost inconceivable under any circumstances.

Therein lies the major difficulty in reaching a confident conclusion for this deal. While the CFIUS has taken almost no action in mergers without political intervention, it's primary purpose in merger investigations is to protect highly sensitive and/or critical defense operations such as those involved in this transaction. So far, there is absolutely no indication of political activity surrounding this transaction, so the CFIUS is, for the time being, on its own in handling this case.

Given the July 29 initial notification under Exon-Florio, it must be assumed that the companies either re-filed or the CFIUS has extended its review into a second stage. Either scenario would in now way be surprising. At this time, there has been no confirmation from the companies regarding either of the two scenarios.

In sum, it is the very difficulty in confidently projecting the CFIUS' behavior in this deal that makes it somewhat troubling. If any merger situation presents an opportunity for the CFIUS to assert its authority, this one is certainly a candidate. However, there is really no basis to suggest that the CFIUS will become a major obstacle here. While it will be a major to shock to this publication if the CFIUS clears this case quickly, this regulator has, again, shown very little initiative of late in terms of actual intervention (note the 3Com-Bain involved a 'non-friendly' country and major political resistance).

Thus, the current and very tentative projection is that Exon-Florio approval will be ultimately granted for this transaction, but this will likely occur after at least one re-filing or the conclusion of a second stage investigation. This could easily push the deal close beyond October, or even beyond November of this year.