Hitachi approaches Finmeccanica over rail business

MILAN/ROME Tue Mar 27, 2012 3:25pm EDT

A Hitachi logo is seen at an electronics shop in Tokyo August 4, 2011. REUTERS/Kim Kyung-Hoon

A Hitachi logo is seen at an electronics shop in Tokyo August 4, 2011.

Credit: Reuters/Kim Kyung-Hoon

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MILAN/ROME (Reuters) - Japanese group Hitachi (6501.T) has approached Finmeccanica (SIFI.MI) about buying some of the rail operations the Italian defense firm wants to sell, a union official said on Tuesday, raising hopes the seller's turnaround plan could gain traction.

Finmeccanica, which on Tuesday announced a 2.3 billion euro ($3.06 billion) net loss for 2011, singled out last year its loss-making train-making unit AnsaldoBreda, its rail signaling-systems affiliate Ansaldo STS (STS.MI), and power engineering firm AnsaldoEnergia as non-strategic.

"Hitachi is interested (in AnsaldoBreda and Ansaldo STS). But any marriage would need time and I don't think it's around the corner," Giovanni Contento, national secretary at Italian union UILM, told Reuters.

He said AnsaldoBreda and unions had reached a deal on Monday over the restructuring, a step which analysts say could be crucial for any bidder to enter final talks.

The agreement document, seen by Reuters, sees breakeven being reached in 2014 and cost savings for 280 million euros in three years, of which 45 million euros this year.

A source close to the talks told Reuters that discussions with Hitachi over a stake sale in AnsaldoBreda had intensified in recent months after interest from U.S. General Electric (GE.N) had cooled.

Ansaldo STS, which alone has a market capitalization of about 1 billion euros, is the most attractive of the transportation assets earmarked for a possible sale.

AnsaldoBreda, which employs about 3,000 people partly in unemployment-plagued cities of Naples and Reggio Calabria, is loss making and has a debt of around 500 million euros.

CLEAN-UP

Finmeccanica unveiled on Tuesday a 2011 net loss of 2.3 billion euros, after booking one-off charges of 3 billion euros to clean up its balance sheet under a new management.

The company, Italy's second biggest industrial employer with some 75,000 staff, underwent a management shake-up in December in the wake of an ongoing corruption probe in Italy that forced out previous boss Pier Francesco Guarguaglini.

The appointment of insider Giuseppe Orsi, who took over Guarguaglini's powers as chairman, was a test for the new Italian government of Mario Monti and reflects in part a change in tone compared to the previous government of Silvio Berlusconi.

"2011 results remove uncertainty and lay solid foundations for our future which will mark a break with the past from the industrial, strategic, management and ethical point of view," Orsi said at a press conference.

Orsi, an aeronautical engineer who started his career 39 years ago in a firm now part of the conglomerate, announced last year plans to sell 1 billion euros of assets by end-2012 to avoid the group's credit rating being cut to junk.

He is pressing ahead with rebuilding the group's reputation and turning its business round by focusing on core defense and aerospace operations.

Guarguaglini is under investigation as part of the probe focusing on accusations of false invoices and slush funds to pay bribes. He has denied wrongdoing.

FOREIGN INTEREST

The source close to the talks said several foreign groups, including Hitachi, had expressed interest for Finmeccanica's Ansaldo STS. The source mentioned Bombardier Inc (BBDb.TO), Alstom SA (ALSO.PA), Siemens AG (SIEGn.DE) and Mitsubishi.

Finmeccanica and Alstom declined to comment. The other companies were not immediately available for comment.

In March, Vinhod Sahai, a Milan-based Indian businessmen, told Reuters he had made an expression of interest for AnsaldoBreda on behalf of an Indian investor.

Earlier on Tuesday, Italian newspaper Il Sole 24 Ore said in an unsourced report Hitachi could be close to buying a 50 percent stake in AnsaldoBreda and 29 percent of Ansaldo STS.

An Hitachi spokesman in Tokyo said the company's policy was not to comment on rumors.

Contento, the union leader, said a U.S. or a Japanese partner could make a better fit for AnsaldoBreda because he expected partnership with larger European rivals such as Alstom or Siemens to lead to job losses.

Approval from trade unions would make it easier for Finmeccanica to finalize any deal.

Finmeccanica shares hit a 9-day high on Tuesday before closing almost 11 percent higher at 3.852 euros. The stock has lost 60 percent over the last year as the corruption probe and expected losses took their toll.

($1 = 0.7504 euros)

(Additional Reporting by Lisa Jucca, Antonella Ciancio, Elisa Anzolin in Milan and by Chris Gallagher in Tokyo; Editing by Hans-Juergen Peters and Andrew Callus)

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