© Reuters. File photo: On March 22, 2019, the logo of the French defense and electronics group Thales can be seen at the corporate headquarters of Merignac near Bordeaux, France. REUTERS/Regis Duvignau/File Photo

Author: Gwénaëlle Barzic

PARIS (Reuters)-Thales, Europe’s largest defense electronics company, said it is in in-depth negotiations on the sale of its GTS railway signaling business to Japan’s Hitachi (OTC), which will value the division It is 1.66 billion euros (2 billion U.S. dollars).

The sale-confirming the exclusiveness of Reuters-was because the French company wanted to simplify its huge business and assure investors that its core focus was on manufacturing high-tech equipment for the defense and aerospace industries.

Thales shares rose 1.1% in early trading.

“Through this major strategic move, we will be able to focus on the development of our 3 high-tech long-term growth businesses, each of which can continue to achieve double-digit profit margins,”

Thales Chairman and CEO Patrick Kane said in a statement.

The three businesses are aerospace, defense and security, and digital identity and security.

The price tag of 1.66 billion euros corresponds to the corporate value of Thales’s division called Ground Transportation Systems (GTS), including debt.

Thales said in a statement that it reflects the division’s 12-month earnings before interest and taxes (EBIT) of 13.8 times, adding that it expects the transaction to be completed by the end of 2022 or early 2023.

Thales also said that its current EBIT (earnings before interest and taxes) target is 9.8-10.3%, compared with the previous EBIT margin target of 9.5-10%.

Compared with competitors, GTS signaling devices that also provide train control systems and toll services are smaller in scale.

The sale coincides with industry consolidation, as independent players form alliances with larger industrial groups.

In January, French train manufacturer Alstom (PA:) Acquired Bombardier’s (OTC:) railway business for 5.5 billion euros, making it the world’s second largest industry after CRRC.

(1 USD = 0.8424 Euro)

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