Siemens says Invensys Rail deal will boost profits

Thu Nov 29, 2012 6:39am EST
 
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By Maria Sheahan and Rhys Jones

FRANKFURT/LONDON (Reuters) - Germany's Siemens AG promised investors its deal to buy Invensys' rail business for a hefty 1.74 billion pounds ($2.78 billion) would contribute to boosting profits in a tough economy.

The engineering conglomerate, Germany's most valuable company, aims to save 6 billion euros ($7.75 billion) and focus on its core areas of expertise to close a gap with rivals such as ABB and General Electric.

Late on Wednesday, the company said it was buying Invensys Rail and selling its baggage handling and postal sorting operations as part of that plan.

The deals will lift the operating profit margin of Siemens' Infrastructure & Cities division by more than one percentage point in fiscal 2014 from 7.5 percent last year, I&C Chief Executive Roland Busch said during a conference call on Thursday.

"We are investing in our profitability. We see a margin improvement ... as validation," Busch said.

The purchase of Invensys Rail vaults Siemens, which was advised on the deal by Goldman Sachs, well ahead of rivals in rail signaling, with a 17 percent market share, almost double the closest rivals Alstom and Ansaldo STS.

The 1.74 billion pound price tag represents about 97 percent of parent company Invensys' market value ahead of Wednesday's announcement, or 15 times Invensys Rail's estimated 2013 operating profit, which analysts said seemed very high.

"We like the strategic intent of the deal, but we do not like the pricing: the value is going to Invensys shareholders," Bernstein Research analysts said.   Continued...

 
A street sign is pictured in front of a factory with the logo of Siemens AG company in Berlin October 9, 2012. REUTERS/Fabrizio Bensch