Hitachi agrees with Finmeccanica S.p.A. to acquire rail business of AnsaldoBreda S.p.A. and 40% of rail signaling company Ansaldo STS S.p.A.

AnsaldoBreda rail business to help Hitachi to compete globally with Siemens, Bombardier and Alstom

by Gerhard Fasol

Finmeccanica accelerates restructuring, reduces debt and focuses on aerospace, defense and security

Hitachi Ltd (株式会社 日立製作所) and Finmeccanica S.p.A. announced on February 24, 2015, that their Boards of Directors have agreed for Hitachi to:

  • acquire the rail business of AnsaldoBreda S.p.A. (with some exceptions) for € 36 million (US$ 41 million), and
  • to acquire Finmeccanica’s 40% holding in the rail signaling and rail systems company Ansaldo STS S.p.A. for € 773 million (approx. US$ 880 million)

Hitachi is expected to be required to launch a tender offer for all remaining shares of Ansaldo STS S.p.A. and if successful, will acquire all of Ansaldo STS S.p.A..

Estimating the overall acquisition size:

Hitachi and Hitachi Rail

Hitachi is generally considered as one of Japan’s most important and most representative companies. Hitachi was founded in 1910 bei Namihei Odaira, and produced Japan’s first electrical motors. (For a detailed analysis of Hitachi and Japan’s electronics industry, read our report “Japan electronics industries: mono zukuri“.

Hitachi’s “Smart Transformation”

While Hitachi grew into a conglomerate with a large number of different business areas, during the 15 years 1997-2012, Hitachi grew with an annual compound growth rate of only 0.48%, and during the period 1997-2012 suffered average annual net losses of YEN 45 billion (US$ 0.45 billion) per year. This difficult business situation is characteristic of Japan’s electronics industry overall, as discussed in our report “Japan electronics industries: mono zukuri“. One reason for this difficult situation is the so-called “Galapagos Effect“.

Indeed, Hitachi’s “Chief Transformation Officer” (CTrO) explained recently, that it is only in 2011/2012 that Hitachi started to benchmark important business performance data (eg. operating margin, R&D expenditure, administrative expenses, cost of sales etc) internationally. Until 2011/2012 Hitachi had only compared performance data with other Japanese companies such as Toshiba.

In April 2010, Hiroaki Nakanishi was appointed President of Hitachi, and he started the “Hitachi Smart Transformation Project” with the aim to rebuild a strong Hitachi into a truly global company. (You can find an overview of Hitachi’s Smart Transformation Project in our report: “Japan electronics industries: mono zukuri“).

Hitachi has great strengths in rail engineering, and the acquisitions of AnsaldoBreda and Ansaldo STS are an implementation of Hitachi’s Smart Transformation Project.

Other recent acquisitions and investments by Hitachi in the railway engineering field include:

AnsaldoBreda S.p.A.

AnsaldoBreda S.p.A. was formed in 2001 by the merger of the companies Ansaldo Trasporti and Breda Costruzioni Ferroviarie, and employs about 2400 employees.

Gio. Ansaldo & C. was founded in 1853 in Genoa to manufacture steam engines, steam locomotives, rail rolling stock.

Ing. Ernesto Breda and C. was founded in 1886, and became Societa Italiana Ernesto Breda (SIEB) in 1899.

AnsaldoBreda in cooperation with Bombardier produces the Italian high-speed train Frecciarossa, and other trains for many mainly European and US rail operators. Recently there have been a number of delivery problems, e.g. the IC4 for Denmark, and the Dutch/Belgian high speed train Fyra, a project which was abandoned on 31 May 2013 after its operating license was suspended by the authorities.

AnsaldoBreda businesses:

  • High speed trains
  • Trams
  • Driverless metro (e.g. in Taipei, Copenhagen, Salonicci, Riyadh, Milano, Honolulu, Brescia)
  • Metro (e.g. Circumvesuviana, Madrid, Fortaleza, Meneghino, Los Angeles, Miami Dade Country, Milano)
  • Commuter trains
  • Locomotives
  • Services

Ansaldo STS S.p.A.

Ansaldo STS S.p.A. is a manufacturer of rail signaling and transportation systems, and was founded in 2006 by the merger of a number of railway engineering companies, including:

  • US Union Switch & Signal (US&S), founded by George Westinghouse in 1881 in Pittsburgh, USA.
  • Compagnie des Signaux pour Chemins de fer (CSE), founded by Fernand Cumont in 1902, which built the first lines of the Paris Metro. Later renamed Company and Business Electrical Signals (CSEE)

40% of Ansaldo STS S.p.A.‘s shares are owned by Finmeccanica S.p.A. and Finmeccanica has now agreed to sell these 40% of shares to Hitachi. The remaining 60% are traded on the Borsa Italiana, and it is reported that Hitachi will be required to launch an offer to purchase all remaining 60% of shares following the acquisition of 40% from Finmeccanica.

Finmeccanica S.p.A.

Finmeccanica S.p.A. is an Italian industrial group, founded in 1948. As of 23 December 2014, 32.45% of Finmeccanica shares are owned by the Italian Ministry of Economy and Finance.

With the sale of the railway businesses, Finmeccanica will focus on aerospace, defense and security core business.

Japan electronics industries – mono zukuri.

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