Invensys (EUREX: ISYF.EX - news) has shocked the City by announcing the sale of its rail signalling division to Siemens (BSE: SIEMENS.BO - news) in a deal worth £1.74bn, just £50m less than the entire company is worth.
Shares in Invensys, whose rail business is regarded as one of the success stories of the British technology industry, soared 27pc on the news of the deal with the German engineering company.
It surprised analysts after selling the rail division for just £50m less than market value of the entire industrial software company. As part of the deal, Invensys will hand £625m back to shareholders, as well as a further £625m to its own pension fund.
But the sale of a business regarded by some in the City as Invensys’s “crown jewels” raises the prospect of a counter-offer for the unit or even a potential break-up bid for the entire company. It could also raise concerns over the sale of another major British technology business to a foreign owner.
Canada’s Bombardier is seen as a another potential bidder for the Invensys rail business, and interest could also come from Chinese and Japanese rail companies such as China Southern Rail and Hitachi Rail.
General Electric (NYSE: GE - news) and ABB (BSE: ABB.BO - news) have also been seen in the past as buyers of the whole company and the sale of the rail unit raises the prospect of a counter-bid for the entire business.
Meanwhile, Emerson Electric (NYSE: EMR - news) , which held unsuccessful takeover talks earlier this year with Invensys, could look to buy the remaining business if the sale of the rail division is successful.
“Invensys is definitely in play now,” said one senior London-based investment banker with knowledge of the company. “I’d expect to see someone make an offer for the rail business before the shareholder vote on the deal, and I certainly wouldn’t be surprised if they got some bids for the remaining parts of the business.”
But Colin Campbell, an industrial analyst at Societe Generale (Paris: FR0000130809 - news) , had no doubts about the merits of the deal and congratulated Invensys chief executive, Wayne Edmunds. “I’ve been covering Invensys for 20 years and this is an absolute blinder,” he said.
Mr Edmunds said the sale to Siemens of the rail division, which last year accounted for about one-third of company’s £2.5bn revenues and employs almost 4,000 people, would deliver “attractive value for our shareholders”.
Invensys Rail is regarded a world leader in signalling technology and its systems are used in railways across the globe. Last year the business was awarded the contract to build the signalling systems for a new railway between Mecca and Medina.
Mr Edmunds said the sale of the business followed a strategic review by Invensys of its business. “We have decided to refocus the group around industrial software, systems and control equipment,” he said.
Siemens said the purchase of Invensys Rail would expand its existing business in the rail automation market.
The German company added that it would be simultaneously selling off its baggage handling, postal and parcel sorting businesses, as well as its light bulb making unit, to allow it to concentrate on the growing rail business.