French defence group Thales to sell signalling business -sources

PARIS (Reuters) -Thales is putting its rail signalling business up for sale in a potential deal worth 1.5 billion euros or more ($1.8 billion) as the French defence and aerospace group seeks to streamline operations, people close to the matter said.

FILE PHOTO: The logo of French defence and electronics group Thales is seen at the company’s headquarters in Merignac near Bordeaux, France, March 22, 2019. REUTERS/Regis Duvignau

Thales, partially owned by the French state, makes equipment ranging from anti-jamming devices for fighter jets to airliner navigation beacons, and investors have often questioned the diversity of its portfolio of assets.

Proceeds from the divestiture would help bolster Thales’ finances after the COVID-19 crisis dented sales and profits last year.

Thales is working with Lazard on the divestiture and is expected to shortly send out information packages to potential buyers including Alstom, Hitachi Rail, Stadler Rail, Spain’s CAF and private equity groups, they said.

Thales and Lazard declined to comment.

Siemens is unlikely to bid for the unit due to likely antitrust issues it would face if it tried to buy the unit, the people said. Alstom, which earlier this year completed the acquisition of Bombardier’s rail business, may face similar problems, they added.

The signalling business sits in Thales’ transport division, which also supplies fare collection systems and cybersecurity solutions for railway infrastructure.

The transport unit last year saw order intake shrink by 6% to 1.6 billion euros as customers delayed rail projects on weak demand during the pandemic. Its EBIT margin improved to 5.3% on cost cuts but still fell short of an 8% target.

JP Morgan analysts said last month that the unit seemed on track. “The H2 2020 margin of 9.1% was encouraging and management seem confident that Transport can achieve high-single digit margins over a full 12 month period, something that hasn’t happened since 2013”, the bank said in a note to clients.

The unit is small compared to competitors and its margin is lower than that of other Thales businesses and rivals.

While Thales has finished putting together a so-called vendor due diligence on its signalling business, prospective buyers will only be able to make their own assessments on the unit at a later stage, the sources said.

Valuation estimates range from 1.5-2.5 billion euros due to the unclear stage of its restructuring and future growth prospects.

($1 = 0.8303 euros)

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