LONDON/MILAN: Canadian plane and train maker Bombardier and Japanese industrial giant Hitachi are the two frontrunners to buy Finmeccanica’s rail subsidiaries, several sources close to the auction process said.
Italy’s Finmeccanica has been trying to sell its cash-strapped train division AnsaldoBreda together with its profitable rail signals business Ansaldo STS for three years, to help reduce net debts of ¤4.8bn ($6.4bn).
The sources said Bombardier Inc and Hitachi Ltd are expected to bid for the Italian group’s rail businesses ahead of an August 29 deadline. Three other groups are also expected to bid.
They are French defence electronics firm Thales, Spanish train builder Construcciones y Auxiliar de Ferrocarriles and train maker China CNR Corp Ltd, in tandem with its partner Insigma Technology Co Ltd.
Finmeccanica has struggled to sell its rail businesses together because the division that makes trains, AnsaldoBreda, has been losing money for years and has long been a drag on the Italian defense group’s results.
Finmeccanica’s listed signaling business, Ansaldo STS, is considered an attractive prospect for the bidders and has a market value of $1.45bn.
The sources close to the auction process, who declined to be named because the talks are private, said Bombardier and Hitachi had the most overlap with train builder AnsaldoBreda.
Several sources said Bombardier Transportation was well-placed to win because it already works with AnsaldoBreda in the development, production and sale of the new Frecciarossa 1000, a train capable of transporting passengers at 360km per hour.
Hitachi, the company behind Japan’s first “bullet” trains, said in March it was moving its global rail business to Britain as part of a push to expand within Europe and beyond.
A spokesman for Finmeccanica, which is being advised on the sale by Mediobanca and UBS, said the process remained open and offers needed to reflect the value of the assets and guarantee investment and development prospects.
Representatives of Bombardier, Hitachi and Spain’s CAF declined to comment. Spokesmen for Thales, China CNR Corporation and Insigma were not immediately available for comment.
Mauro Moretti, a veteran rail executive who took over as Finmeccanica’s chief executive in May, is under pressure to make changes at the Italian group and intends to wrap up the rail business auction in October.
State-controlled Finmeccanica aims to raise about ¤2bn from the sales to help cut its net debt, which is rated as junk, and focus on its core aerospace and defense businesses.
The challenge for Moretti is to make AnsaldoBreda as attractive as possible so the combined sale is a success. The sources said some of the bidders, including Bombardier and Thales, are more likely to submit provisional offers by the August 29 deadline, rather than binding bids.
The companies want more clarity on what parts of AnsaldoBreda will be included in the deal and what guarantees Finmeccanica is ready to make so the asset is more appealing.
At least two of the bidders want the Italian defence group to recapitalise AnsaldoBreda prior to any deal, two sources said, and their bids will remain conditional until Finmeccanica spells out exactly what it is prepared to do.
AnsaldoBreda, which aims to break even at an operating level in 2015, has a negative value of ¤150m, according to one analyst estimate. It posted a loss before interest and tax of ¤227m in 2013. Annual pre-tax losses reached a peak of more than ¤700m in 2011.
A capital increase would help bring AnsaldoBreda’s value back to zero and beef up the balance sheet, as the division is likely to need more investment in the future, two sources said.
This would then allow the various suitors to table a competitive offer for Finmeccanica’s Ansaldo STS. The sources said the signals division would command a premium of about 25 percent over its current market value.
Reuters
