French defense group Thales sells signaling resources
PARIS (Reuters) -Thales puts its rail signaling business up for sale in a potential deal of € 1.5 billion or more ($ 1.8 billion) as the French defense and aerospace is looking to streamline its operations, people familiar with the matter said.
Thales, partially owned by the French state, manufactures equipment ranging from anti-jamming devices for fighter jets to navigation beacons for airliners, and investors have often questioned the diversity of its portfolio of assets.
The proceeds from the divestiture would help bolster Thales finances after the COVID-19 crisis hit sales and profits last year.
Thales is working with Lazard on the divestiture and is expected to send information packages to potential buyers soon, including Alstom, Hitachi Rail, Stadler Rail, Spanish CAF and private equity groups, they said.
Thales and Lazard declined to comment.
Siemens is unlikely to bid on the unit due to likely antitrust issues it would face if it tried to purchase the unit, the people said. Alstom, which completed the acquisition of Bombardier’s rail business earlier this year, could face similar problems, they added.
The signaling activity is located within the transport division of Thales, which also provides fare collection systems and cybersecurity solutions for rail infrastructure.
Last year, the transport unit saw its order intake drop 6% to 1.6 billion euros as customers delayed rail projects due to weak demand during the pandemic. Its EBIT margin improved to 5.3% thanks to the cost reduction, but still failed to meet the 8% target.
JP Morgan analysts said last month that the unit appeared to be on the right track. “The 9.1% margin in H2 2020 was encouraging and management seems confident that transportation can achieve high single-digit margins over a full 12-month period, which has not happened since 2013,” the bank said in a note to customers.
The unit is small compared to its competitors and its margin is lower than that of other activities and competitors of Thales.
Although Thales has finished putting in place so-called supplier due diligence on its signaling activities, potential buyers will only be able to make their own assessments of the unit at a later stage, the sources said.
Valuation estimates range from 1.5 to 2.5 billion euros due to the unclear stage of its restructuring and future growth prospects.
(1 USD = 0.8303 euros)
Editing by Kirsten Donovan