Hitachi chief executive Hiroaki Nakanishi speaks during a news conference in Tokyo. The Japanese firm has agreed to buy Italian conglomerate Finmeccanica’s rail and signal assets, sources close to the matter said yesterday.

Reuters/Milan/Tokyo


Italian conglomerate Finmeccanica has agreed to sell its rail assets to Japan’s Hitachi in a potential €1.9bn ($2.15bn) deal that will cut its debt by 15% and help it to refocus on aerospace and defence.
Hitachi, meanwhile, will gain a stronger foothold in Europe to compete with bigger rivals such as Germany’s Siemens and France’s Alstom, having already relocated its rail division to London last year.
State-controlled Finmeccanica had been trying to sell its loss-making train business AnsaldoBreda and a controlling stake in rail-signalling company Ansaldo STS for almost four years.
However, corruption scandals and political meddling delayed the process, prompting ratings agencies to downgrade the Italian group’s €4.1bn of debt to junk status, increasing its financing costs and damaging its international competitiveness.
The Hitachi deal, which Finmeccanica said will cut its debt by €600mn, is likely to boost investor confidence in the ability of CEO Mauro Moretti to deliver on its business plan. Moretti had been chosen last year by Prime Minister Matteo Renzi to lead the company’s turnaround.
The plan, presented to investors in January, aims to cut net debt to less than €3.5bn by 2017, helped by a withdrawal from unprofitable projects and a possible sale of its US business DRS Technologies.
For Hitachi the main focus of the deal is Ansaldo STS, a profitable business that would help it to sell combined carriage and signals packages as well as giving it a manufacturing presence in continental Europe.
Shares in Finmecccanica rose after news of the deal, which had been leaked by sources late on Monday, but turned negative by mid-morning yesterday.
At 0906 GMT the stock was down 3.6% at €10.92, having risen more than 6% in the previous session, while the company’s bonds were sharply higher.
Finmeccanica has about €5bn of outstanding bonds, with coupons ranging from 4.375% to 8%. Its most recently issued bond  – a €950mn 4.5% note maturing in 2021 – tightened from a bid yield of 2.26% to a record low of 2.04% in the secondary market, according to Tradeweb.  Hitachi will pay €773mn for a 40% stake Finmeccanica owns in signalling unit Ansaldo STS, the companies said in a joint statement.
The Japanese company will pay €9.65 for each Ansaldo STS share and launch a mandatory offer to buy all the remaining shares. If all minority shareholders tender their shares, the overall price will rise to a little more than €1.9bn.
The price represents a 9.2% premium to the stock’s closing level on Monday.
Hitachi will also pay €36mn for Finmeccanica’s AnsaldoBreda train business, excluding certain residual contracts and other activities that need revamping.
“It remains to be seen what is the possible negative value of AnsaldoBreda’s residual contracts ... but there’s no doubt on the positive impact (for Finmeccanica) of the overall agreement,” Banca Akros analyst Gabriele Gambarova said.