DRS Technologies [DRS] disclosed last week that a foreign company offered it more money for a potential acquisition than the $81 per share it eventually accepted from Italy’s Finmeccanica but that its board of directors decided against the higher offer, saying it carried more risk because it wasn’t final and because terms and conditions hadn’t been offered.

However, DRS used the $85 per share offer it received from Company X, as the other foreign firm is referred to in a filing last week with the Securities and Exchange Commission (SEC), as leverage to get better deal terms from Finmeccanica, which originally offered $75 per share on March 18. At the time, the $75 offer was 35 percent higher than the price of DRS’ stock when the financial markets closed on March 17.

As part of its deal for DRS, Finmeccanica also had agreed to retain DRS’ management.

On March 6, well after DRS and Finmeccanica were in detailed negotiations about an acquisition but before the Italian company had made a firm offer, Company X indicated its interest in acquiring DRS but didn’t mention price, terms and conditions. Company X also didn’t follow up its offer at the time, DRS says in its preliminary proxy filing with the SEC regarding its transaction with Finmeccanica.

On May 7, DRS also received another unsolicited offer to acquire it, this one from a United States company, whose name DRS didn’t disclose. However, like the original offer from Company X, the offer from the U.S. firm also didn’t mention price, terms and conditions.

The next day, several major news outlets reported that DRS was in talks with Finmeccanica about a deal. DRS issued a press release at the time saying it was in talks for a potential strategic transaction but didn’t say with who (Defense Daily, May 9).

Then, on May 9, the day after the news broke about the possible Finmeccanica, DRS combination, Company X made its $85 per share offer for DRS, with the possibility that the bid could go higher depending on due diligence. DRS says that the offer still lacked conditions, including an operating plan for DRS, and asked Company X for more details. DRS quickly found out the Company X hadn’t discussed the potential transaction with its Board of Directors and hadn’t produced any type of financing arrangement to pursue the acquisition.

With that, and given that the $85 per share price might not even hold, DRS moved to try and get Finmeccanica to up its $75 per share price and improve some of the terms and conditions. On May 11, in addition to increasing its offer price, Finmeccanica also agreed to lower the required break up fee that DRS might have to pay from $150 million to $90 million, extend the possible closing from Dec. 15, 2008, until Jan. 31, 2009, if the Committee on Foreign Investment in the United States still hasn’t approved the transaction by mid-December, and agree to place operations representing up to 35 percent of DRS’ sales under proxy if the Defense Department requires this as a merger condition.

Following separate fairness opinions rendered by its two financial advisers, Bear Stearns and Merrill Lynch, DRS’s board on May 12 agreed to the revised offer from Finmeccanica.

At the time the talks between DRS and Finmeccanica became public, only the European Aeronautic Defence and Space Co. (EADS) said that a combination with DRS might be attractive. However, shortly after DRS’ deal with Finmeccanica was announced, EADS indicated that it wouldn’t go after DRS. Whether EADS is the Company X mentioned in the DRS filings isn’t known.

In addition to receiving clearances from the U.S. government, DRS’ shareholders must still approve the transaction. A date for the shareholders meeting hasn’t been set.

DRS also disclosed in its annual report last month and again in the recent SEC filing that in mid-May, after the merger agreement with Finmeccanica had been agreed to, a shareholder filed a class action suit against the company alleging that the company isn’t getting as good a deal as possible and that its managers “are engaged in self-dealing in connection with the transaction.” DRS refutes the claims.