ENGINEERING group Invensys yesterday shocked the City by securing a £1.7bn sale for its rail business in a deal with German giant Siemens.
Invensys shares soared 27 per cent to reach 280p yesterday, giving the group a valuation of roughly £2.3bn, after the firm sold off its rail arm for just £50m less than yesterday morning’s market capitalisation for the entire company.
The parent company plans to use money from selling Invensys Rail, which produces signalling systems, to return £625m of cash to investors – roughly 76p per share.
It will also plough £400m into its pension scheme to reduce the deficit along with a further £225m going into a trust to counteract future pensions problems. This will allow the firm to halt its deficit reduction payments, recently totalling £40m-£47m annually.
The sale will leave Invensys more focused on its core business, it says, and deliver cost savings of £25m per year by the end of 2014.
“Following a strategic review which highlighted the likely consolidation in the global rail signalling market and the limited scope to increase the size of the Invensys Rail business, we have decided to refocus the group around our [core] business,” said chief executive Wayne Edmunds.
“As well as providing shareholders with an immediate cash return, this transaction enables the group to create a long term pension solution and therefore increased financial flexibility going forward.”
Freshfields were legal advisers to Invensys on their side of the deal. A Linklaters team led by Roger Barron and Iain Wagstaff advised Siemens, the first time Linklaters have worked with Siemens on mergers and acquisitions. JPMorgan Cazenove and Ondra Partners were joint financial advisers to Invensys.