Siemens AG (News - Alert) is planning to purchase Invensys' Rail business for $2.78 billion. It will also sell its baggage handling and postal-parcel sorting businesses.
The deals are part of an effort to let the Germany-based company focus on core activities and save money on employee retirement benefits.
Invensys Rail provides software-based rail signaling and controls.
The purchase comes as rail automation is predicted to be a growing market, Siemens said. The deal will also add several global markets to Siemens’ current operations.
"Today's moves are important measures to focus our core activities,” Roland Busch, CEO of Siemens Infrastructure & Cities, said in a company statement. “We are exiting a non-core business with limited synergy potential while strengthening a resilient and high return business by combining two organizations with similar cultures and attractive synergy potential. The combined business will ensure profitable growth opportunities worldwide.”
Buying Invensys Rail places Siemens ahead of rivals in rail signaling, with a 17 percent market share, according to Reuters.
The price of the company, however, was considered too high by some analysts. "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 were quoted by Reuters.
Two other companies had been interested in buying Invensys – Emerson (News - Alert) Electric and China South Locomotive.
"With the addition of Invensys Rail we are in an excellent position to offer best-in-class solutions and technology to rail operators worldwide,” Sami Atiya, CEO of Siemens' Mobility and Logistics Division, said in the statement.
The deals will require a series of approvals before going into effect.
The deals are also part of Siemens plan to cut its costs by $7.7 billion in two years, and cut an unspecified number of jobs and boost sales by a third in a few years, according to a report from TMCnet. In a program called “Siemens 2014,” the company wants profit margins increased to at least 12 percent. Earlier this year, the company said it will sell off operations related to the processing and treating of water and wastewater. Siemens also announced earlier this year it was acquiring LMS International, which provides a software platform for the modeling, simulating and testing of mechatronic systems in vehicles and airplanes. In addition, the company announced it would sell its solar business and concentrate on wind and water.
Edited by Rich Steeves