Hitachi Said to Buy Italian Rail Business for More Than $2 Billion

TOKYO -- Hitachi has landed a deal to buy the railway business of Italy's Finmeccanica for a sum seen exceeding 250 billion yen ($2.08 billion), the Nikkei reported Tuesday, citing to a source familiar with the matter.

This will mark Hitachi's biggest acquisition ever, eclipsing its 2003 purchase of IBM's hard-disk-drive business for 240 billion yen.

The Italian defense and aviation company announced last summer plans to unload wholly owned rail car subsidiary AnsaldoBreda and Ansaldo STS, a traffic signal company in which it holds a roughly 40% stake.

Four companies, including Thales of France, stepped forward as prospective buyers. Hitachi came close to sealing the deal last November, but a subsequent offer from a Chinese company delayed Finmeccanica's final decision.

Hitachi plans to first acquire all shares held by Finmeccanica in the two companies and then make a tender offer to turn the Milan Stock Exchange-listed Ansaldo STS into a wholly owned subsidiary as well.

With Ansaldo STs' market capitalization roughly equivalent to 240 billion yen, the deal is expected to cost Hitachi more than 250 billion yen.

The acquisition will push up the Japanese company's annual sales from rail-related businesses to more than 400 billion yen -- half as much as Bombardier of Canada, Siemens of Germany, or Alstom of France.

Hitachi's rail operations, which have focused on Japan and the U.K., will now go global and gain Italian rail car production facilities.

Ansaldo STS enjoys high profitability and is the second-largest player in traffic signal systems. It boasts solid track records in the U.S. and Europe.

With rail car giants China CNR and CSR on course to merge this year, giving rise to an industry behemoth, more consolidation will likely follow the Hitachi-Finmeccanica deal.