Colt buys majority stake in $1 billion gunpowder ingredient maker

By Jan Lopatka

PRAGUE (Reuters) -Czech-based firearms maker Colt CZ Group SE has agreed to buy a majority stake and potentially all of the shares in Synthesia Nitrocellulose, in a deal valuing the Czech gunpowder ingredient maker at 22 billion crowns ($1.05 billion).

Colt, which also has operations in the United States, Canada, Sweden, Switzerland and Hungary, said on Friday the deal with privately-owned chemicals group Synthesia would help to secure its supply chain and expansion into larger calibres, which are in high demand amid Europe's rearmament drive.

Energetic nitrocellulose is a raw material needed for ammunition production, especially for gunpowder. Colt does not produce it itself at this point but may aim to step into the business in future, the company said.

"The acquisition ... fits into our strategy of expanding the group's activities into medium and large-calibre ammunition while strengthening our position in a critical element of our supply chain," Colt Chairman Jan Drahota said in a statement.

"We intend to continue the vertical integration of ammunition manufacturing, thereby contributing to the strategic independence and self-sufficiency of the Czech Republic and NATO countries in defence supplies."

Synthesia Nitrocellulose is among the top three energetic nitrocellulose producers in Europe and North America, with a 6,000 metric ton capacity and an expansion to 7,000 tons underway, Colt said.

The transaction gives Synthesia Nitrocellulose an enterprise value of 22 billion crowns, or about 8.2 times expected 2025 core profit, Colt said.

In the first stage, Colt will take a 51% stake in a cash-and-shares deal, pending regulatory approvals expected by the end of the first quarter of 2026, it said.

The initial cash payment will be 5.5 billion crowns, with stock accounting for about 40% of the first stage of the deal. This will make Synthesia owner Kaprain the third largest shareholder in Colt with between 5% and 10%, Colt said.

Colt and Kaprain have options to buy and sell the remaining 49% stake, respectively.

Colt said it may issue bonds in the fourth quarter to help finance the deal, which also includes Synthesia's power production business.

Colt shares were up 0.14% at 1000 GMT, against a 0.4% drop in the Prague PX index.

($1 = 20.9570 Czech crowns)

(Reporting by Jan Lopatka. Editing by David Goodman and Mark Potter)