Hitachi said near $2.86 billion deal to buy Italian rail business

TOKYO (Bloomberg) - Hitachi is close to an agreement to pay 250 billion yen (S$2.86 billion) for Finmeccanica's rail business in its largest overseas acquisition, according a person familiar with the matter.

The Japanese industrial group, which makes nuclear power plant turbines, electronic equipment and industrial machinery, will acquire the AnsaldoBreda SpA rail business to expand outside the country, said the person, who asked not to be identified because the decision isn't yet public. Finmeccanica said in November it received an offer from the Japanese group.

Hitachi has sought to expand overseas as Japan's population declines and most nuclear power plants in the country remain shut after the 2011 earthquake and tsunami led to radiation leaks at a facility on the northeast coast. Finmeccanica Chief Executive Officer Mauro Moretti is selling the rail unit to focus on faster-growing helicopter, aerospace and defense- electronics businesses and cutting debt at the company owned 32 percent by the state.

"This deal got my attention, so I'm watching how Hitachi will add value to the rail business and compete globally from now," said Masayuki Doshida, senior market analyst at Rakuten Economic Research Institute in Tokyo. "So far, the market hasn't appreciated this purchase."

Hitachi fell 0.8 per cent to 827.9 yen as of the 11:30 a.m. break in Tokyo trading, bringing its decline to 8.1 per cent this year, compared with the 6 per cent gain in the benchmark Nikkei 225 Stock Average.

The Japanese group, which moved the headquarters for its rail business to London last year, is paying about four times 2013 revenue for AnsaldoBreda, according to data compiled by Bloomberg. That compares with the 3 times revenue average for 7 rail-related deals over the past five years, the data show.

AnsaldoBreda, with four plants and 2,300 workers, is a world leader in driver-less metro trains, delivering the first system of its kind to Copenhagen in 2002 and completing initial work for a Honolulu contract last year. It's also building 50 Frecciarossa ETR 1000-model high-speed trains for Ferrovie, its main customer, in a 1.5 billion euro contract shared with Canada's Bombardier Inc.

Finmeccanica had failed to sell AnsaldoBreda to Hitachi in 2012, while China's CNR Corp. and Insigma Technology Co., Bombardier, General Electric Co. and Thales SA had also expressed interest.

Hitachi had cash and equivalents of about 753 billion yen, the highest since 2009, as of Dec. 31, according to data compiled by Bloomberg. The company has spent about US$3.8 billion on acquisitions over the past three years, including the AnsaldoBreda deal, with US$3.3 billion spent on companies in Europe, the data show.