Hitachi Agrees to Buy Two Finmeccanica Rail Businesses

Hitachi Agrees to Buy Two Finmeccanica Rail Businesses :Hitachi Ltd. agreed to buy Finmeccanica SpA’s rail business and a signals affiliate in its largest overseas acquisition as it seeks growth abroad.

The Japanese industrial group, which makes nuclear power equipment, rail systems and industrial machinery, will pay 773 million euros ($874 million) for Finmecannica’s stake in Ansaldo STS SpA and 36 million euros for AnsaldoBreda SpA, the companies said in a joint statement. The deal values Ansaldo STS at 1.93 billion euros, about 9.2 percent more than its market value at the Borsa Italiana close yesterday.

Hitachi has sought to expand overseas as most of Japan’s nuclear power plants remain shut after the 2011 earthquake and tsunami led to radiation leaks at a facility on the northeast coast. Finmeccanica Chief Executive Officer Mauro Moretti is selling the rail unit to focus on faster-growing helicopter, aerospace and defense-electronics businesses and is cutting debt at the company, which is owned 32 percent by the state.

“This is still a reasonable price,” said Damian Thong, an analyst at Macquarie Securities Ltd. in Tokyo. “The transaction sends a clear message that the company’s focus is on global growth and especially on developing the European market.”

Rome-based Finmeccanica had said in November it received an offer from the Japanese group.
Rail Consolidation

Finmeccanica shares fell as much as 3.6 percent in Milan to 10.65 euros and were down 2.9 percent as of 11:44 a.m. in Milan. Ansaldo STS shares rallied 7.9 percent to a record 9.53 euros.

Hitachi fell 0.8 percent to 828.2 yen as of the close in Tokyo trading, bringing its decline to 8.1 percent this year, compared with the 6.6 percent gain in the benchmark Nikkei 225 Stock Average.

Hitachi’s purchase further consolidates an industry that started concentrating in 2012, when Germany’s Siemens AG announced the purchase of Invensys Plc’s rail-signaling business. China’s CSR Corp. Ltd. agreed last year to acquire smaller competitor China CNR Corp. Ltd., while Alstom SA plans to buy the rail-signaling business of General Electric Co. as the U.S. company buys the power-equipment units of the French trainmaker.

“This is a good chance to gain strength and join the ranks of the global companies in a large market, starting with railways — an area where Japan is strong,” said Minoru Matsuno, president of Value Search Asset Management Co. in Tokyo. “This goes along with the trend of aggressive exports of social infrastructure on the back of Abenomics.”

Hitachi will start a mandatory tender offer for the remaining shares of Ansaldo once the transactions are completed, it said in the statement. Finmeccanica owned 40 percent of Ansaldo STS as of Dec. 29, according to data compiled by Bloomberg.
Driver-less Trains

Finmeccanica will cut its debt by 600 million euros as a result of the transaction, it said in the joint statement. Net debt will reach 3.4 billion euros at the end of the year, Chief Financial Officer Gian Piero Cutillo said on a conference call. The company plans to update its financial targets when it reports full-year results March 18 and doesn’t plan to pay any extraordinary dividends, he said.

Hitachi plans to use cash on hand as much as possible and isn’t thinking of issuing new securities to finance the deal, Chairman and Chief Executive Officer Hiroaki Nakanishi said at a press briefing in Tokyo.

The simultaneous closing of the transactions is expected later this year and is subject to certain customary conditions, such as regulatory and antitrust approvals, Hitachi said in a statement.

Citigroup Inc. advised Hitachi on the deal, while Mediobanca SpA and UBS Group AG advised Finmeccanica, according to the statement.
Cash Pile

AnsaldoBreda, with four plants and 2,300 workers, is a world leader in driver-less metro trains, delivering the first system of its kind to Copenhagen in 2002 and completing initial work for a Honolulu contract last year. It’s also building 50 Frecciarossa ETR 1000-model high-speed trains for Ferrovie, its main customer, in a 1.5 billion euro ($1.7 billion) contract shared with Canada’s Bombardier Inc.

Finmeccanica had failed to sell AnsaldoBreda to Hitachi in 2012, while China CNR Corp. and Insigma Technology Co., Bombardier, General Electric and Thales SA had also expressed interest.

Hitachi had cash and equivalents of about 753 billion yen as of Dec. 31, its highest level since 2009, according to data compiled by Bloomberg. The Tokyo-based company has spent about $3.8 billion on acquisitions over the past three years, including the AnsaldoBreda deal, with $3.3 billion spent on companies in Europe, the data show.

To contact the reporters on this story: Takashi Amano in Tokyo at tamano6@bloomberg.net; Kiyotaka Matsuda in Tokyo at kmatsuda@bloomberg.net

To contact the editors responsible for this story: Anand Krishnamoorthy at anandk@bloomberg.net Arran Scott, Michael S. Arnold

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