HTHIY Hitachi Ltd (PK)

   By Olivia Bugault 
 

Thales SA said Wednesday that it has entered into exclusive negotiations with Japanese conglomerate Hitachi Ltd.'s subsidiary Hitachi Rail for the sale of its rail-signaling business for an enterprise value of 1.66 billion euros ($1.97 billion).

The final purchase price of the sale of the ground transportation systems business, which should be completed by the end of 2022 or the beginning of 2023, will be set "after customary adjustments for net working capital and net debt based on actual amounts at the closing date," the French aerospace-and-defense company said.

The completion of the deal will take time as it requires a carve-out --the partial divestiture of a business unit--in around 40 countries, Thales said.

For 2020, Thales's transport unit booked order intake that was down 4% organically at EUR1.65 billion, while organic sales fell 14% to EUR1.62 billion on the back of the coronavirus pandemic and delay in signing contracts. The segment had a negative earnings before interest and taxes margin of 2.4% in 2015 but returned to positive territory since, reaching 5.3% in 2020, and should come above 7% this year, Thales said.

After the acquisition, Hitachi Rail will be positioned to become a global leader in the rail signaling market, it said.

Meanwhile, the additional liquidity from the planned sale will help Thales further invest in research and development and potential future acquisitions, Chief Executive Patrice Caine said Wednesday during a call with journalists.

Mr. Caine said the cash will allow the group to continue to invest in bolt-on acquisitions--which refers to smaller companies--but also in the potential takeover of larger companies, which it did when it bought software company Gemalto for EUR4.8 billion in 2019. Future acquisitions won't necessarily be based on the operational performance of the targeted company at the time of the acquisition but on the potential synergies and estimated profitability trajectory, he said.

Through the sale of its rail-signalling business, Thales will strengthen its balance sheet but also its focus on three main markets--defense and security, aerospace, and digital identity and security, the company said.

Post-disposal, its defense and security segment should represent roughly 53% of its sales, while aerospace will be at about 28% and the share of digital identity and security will be at roughly 19%, Thales said. It also now targets an EBIT margin of 12% in the medium-term, compared with 10.6% in 2019.

Thales said its transport business will be treated as discontinued business as of 2021, and so updated its outlook for the year. The company now expects 2021 sales to come between EUR15.8 billion and EUR16.3 billion compared with a previous range of EUR17.5 billion-EUR18 billion, while it targets a higher EBIT margin of 9.8% to 10.3%. That compares with a previous forecast of 9.5% to 10%.

At 0937GMT Thales shares were trading 1.6% higher at EUR89.

Write to Olivia Bugault at olivia.bugault@wsj.com

(END) Dow Jones Newswires

August 04, 2021 06:09 ET (10:09 GMT)

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