By Eric Sylvers in Milan and Takashi Mochizuki in Tokyo
Hitachi Ltd., moving to expand its transportation business
overseas, Tuesday signed a binding agreement to buy two units from
Finmeccanica for about $1 billion as the Italian company looks to
lower debt and concentrate on its core aerospace and defenses
businesses.
Hitachi will pay EUR773 million ($876.1 million) for
Finmeccanica's 40% stake in rail signaling operator Ansaldo STS and
EUR36 million for unprofitable train manufacturer AnsaldoBreda, the
two companies said in a statement. Following the closing of the
deal, expected by the end of the year, Hitachi will launch a
mandatory tender offer on Ansaldo STS's publicly traded shares
which could boost the Japanese company's total payout to as much as
$2.5 billion.
After restructuring to scale back its consumer electronics
business, the Japanese conglomerate has been pushing to expand
abroad, in areas ranging from train building to power-generation
equipment to reduce its reliance on its slow-growing domestic
market. The company moved the headquarters of its rail division to
London from Tokyo last year after winning an order to supply
high-speed trains in Britain.
For Finmeccanica, a third owned by the Italian government, the
sale has been a long time coming, as the company continues to
implement a plan to lower debt and concentrate resources on its
aerospace and defense businesses.
Finmeccanica has been calling asset sales a priority since at
least 2012, but potential transactions have often been met with
national hand-wringing and demands that jobs be protected as part
of any disposal deals.
Finmeccanica sold its power-plant construction business in late
2013 after more than 18 months of on-again off-again negotiations
with various potential buyers. An offer by Siemens to buy the unit
lead to a political backlash and later a rival offer from a fund
backed by the Italian state eventually won out. Ansaldo STS has
4,000 employees, with about a third of them in Italy, while
AnsaldoBreda has 2,300.
"We will keep the current employees and factories of
AnsaldoBreda and we will utilize those of Ansaldo STS," said
Hiroaki Nakanishi, chairman and chief executive of Hitachi. "As for
the current management of the Italian companies, our first priority
is to utilize the current structure."
The difficulty in selling industrial assets in Italy makes
Tuesday's announced sale a particularly noteworthy victory for the
year-old government of Matteo Renzi, the Italian prime minister who
has made attracting foreign direct investment an important
component of his plans to rekindle economic growth. Italy has one
of the highest ratios of debt to gross domestic product in the
world and is just now tentatively beginning to emerge from a
triple-dip recession. The government and the International Monetary
Fund are forecasting 0.6% growth this year.
Hitachi will pay EUR9.65 per Ansaldo STS share, a 9.2% premium
to Monday's closing share price. The Italian company's shares have
gained about 25% in the past 12 months.
"To be honest, the amount of cash we will be paying is larger
than what I had initially expected because of the weak yen and also
the Italian company's stock price moves," Mr. Nakanishi said.
Finmeccanica said the deal will lower its net debt by EUR600
million and lead to a capital gain of EUR250 million. Finmeccanica
had negotiated with several other potential bidders and, for a
time, a deal seemed close with a group led by Insigma Group of
China.
Any dividends paid by Ansaldo STS before the closing of the deal
will be deducted from the final price.
Ansaldo STS was 6.4% higher in midday trading in Milan at
EUR9.40 while Finmeccanica, which has surged by more than 40% in
the past three months, shed 2.9% to trade at EUR10.64.
Mediobanca and UBS advised Finmeccanica while Citigroup assisted
Hitachi.
Manuela Mesco contributed to this article.
Write to Eric Sylvers at eric.sylvers@wsj.com and Takashi
Mochizuki at takashi.mochizuki@wsj.com
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