THALES (EPA:HO) - Thales enters into agreement in view of selling its Ground Transportation Systems business to Hitachi Rail

Transparency directive : regulatory news

04/08/2021 07:00

PRESS RELEASE
4 August 2021 ? 7:00 CET
Paris La Défense

  Thales enters into agreement in view of selling its Ground Transportation
                          Systems business to Hitachi Rail

* Entry into exclusive negotiations with Hitachi Rail on the sale of "Ground
  Transportation Systems" business, for an enterprise value of EUR 1,660
  million
* Compelling valuation reflecting effective turnaround
* Reinforcement of Thales's strategic focus on 3 long-term growth markets:
  Aerospace, Defense & Security, Digital Identity and Security, driving
  accelerated EBIT margin accretion and further deleveraging
* Combined GTS and Hitachi Rail business to be positioned as a global leader in
  the rail signaling market
* Employee representative bodies of both Thales and Hitachi Rail are being
  consulted on this project, which is also subject to usual closing conditions

Thales (Euronext Paris: HO) and Hitachi Rail announce today that they are
entering into exclusive negotiations on the sale of Thales's Ground
Transportation Systems Global Business Unit ("Ground Transportation Systems" or
"GTS") for an enterprise value of EUR 1,660 million.

With around 9,000 employees at the end of 2020, Ground Transportation Systems
is a global leader in Rail Signaling and Train Control Systems,
Telecommunications and Supervision systems and Fare collection solutions, key
technologies for a more sustainable mobility. Around 8 billion passengers
benefit from GTS's rail technologies every year.

Thanks to the engagement of GTS employees and, more globally, of Thales's
management team, the business achieved a remarkable turnaround over the past 5
years, delivering in 2020 and H1 2021 its best financial performance of the
past 7 years, in spite of the Covid-19 crisis.

Thanks to the strong technical, geographical and commercial complementarities
between Hitachi Rail and Ground Transportation Systems, the combination will
create a leading rail signaling provider with a broader product offering and
stronger capabilities to meet customer demand around the world. In addition, it
will offer GTS's employees enhanced professional opportunities. The combined
strength of Hitachi and GTS's digital expertise will also help Hitachi Rail to
accelerate its Mobility as a Service ("MaaS) offering.

Through this transaction, Thales reinforces its strategic focus on 3 long-term
high technology growth markets: Aerospace, Defense & Security, and Digital
Identity & Security. Each of its businesses is an industry leading pure player
focused on intelligent systems and digital solutions, able to sustainably
deliver double-digit EBIT margins. This move enables the Group to now target an
EBIT margin of 12% in the medium-term.

The transaction will also strengthen Thales's balance sheet and provide
substantial cash optionality.

"After discussions with key market players, Thales has selected the best
industrial partner to ensure a successful long term development of its ground
transportation business. This move is creating significant value for our
clients, employees and shareholders, and enables Ground Transportation Systems
to be at the forefront of growth in sustainable mobility." - Philippe Keryer,
EVP Strategy, Research & Technology, Thales

"With this major strategic move, we will be able to focus on the development of
our 3 high-tech long-term growth businesses, each of them able to sustainably
deliver double-digit margins -- Aerospace, Defense & Security, and Digital
Identity & Security -- further strengthening their best- in-class market
position." - Patrice Caine, Chairman and CEO, Thales

"Today's announcement marks an exciting opportunity for the teams at Hitachi
Rail and Thales's Ground Transportations Systems business to create new value
for our customers, cities and passengers around the world. Not only will we
grow the reach of our core signaling capabilities as part of our turnkey
offering, but we are also bringing together our digital and MaaS capabilities.
The strong teams, customer relationships and technologies at GTS will help us
grow to become a major player, further enabled by Lumada and the digital
engineering of our teams at GlobalLogic and the broader Hitachi Group." -
Andrew Barr, Chief Executive Officer, Hitachi Rail

Updated 2021 financial outlook

Since the transport segment will be treated as discontinued operations in the
2021 financial statements, Thales's 2021 financial outlook is updated as
follows:

* As in 2019 and 2020, a book-to-bill ratio above 1;
* Sales in the range of EUR15.8 billion to EUR16.3 billion;
* An EBIT margin in the range of 9.8% to 10.3%, up 180 to 230 basis points from
  2020.

Next steps

Employee representatives of both Thales and Hitachi Rail will be informed and
consulted on this project according to the laws of involved countries.

The completion of the transaction will require the carve-out of the business in
several countries, and is subject to usual conditions including regulatory and
antitrust clearances. It is expected to close by the end of calendar year 2022
/ early in calendar year 2023.

Deal background
* Scheme: 100% acquisition of "Ground Transportation Systems" business by
  Hitachi Rail following carve-out from Thales, subject to approvals from
  employee representatives and relevant regulatory bodies
* Price: Enterprise Value of EUR 1,660 million (¥215bn), corresponding to an
  implied valuation of 13.8x EV/EBIT, based on reported H2 2020-H1 2021 segment
  EBIT. The final purchase price will be determined after customary adjustments
  for net working capital and net debt based on actual amounts at the closing
  date.
* Source of funds: Paid by cash at hand at closing
* Offer approved by both Thales's and Hitachi's Boards of Directors
* Transaction advisors: In connection with the transaction, Lazard acted as
  financial advisor to Thales, and BDGS, Baker McKenzie and August Debouzy
  acted as legal counsels.

                                        ****

This press release contains inside information as per the definition of article
7 of EU regulation No. 596/2014. It contains certain forward-looking
statements. Although Thales believes that its expectations are based on
reasonable assumptions, actual results may differ significantly from the
forward-looking statements due to various risks and uncertainties, as described
in the Company's Universal Registration Document, which has been filed with the
French financial markets authority (Autorité des marchés financiers - AMF).

About Thales

Thales (Euronext Paris: HO) is a global leader in advanced technologies,
investing in digital and ?deep tech? innovations ? connectivity, big
data, artificial intelligence, cybersecurity and quantum computing ? to build
a confident future crucial for the development of our societies. The Group
provides its customers ? businesses, organisations and governments ? in the
defense, aeronautics, space, transport, and digital identity and security
domains with solutions, services and products that help them fulfil their
critical role, consideration for the individual being the driving force behind
all decisions.

Thales has 81,000 employees in 68 countries. In 2020 the Group generated sales
of EUR17 billion.

About Hitachi, Ltd.

Hitachi, Ltd. (TSE: 6501), headquartered in Tokyo, Japan, is focused on its
Social Innovation Business that combines information technology (IT),
operational technology (OT) and products. The company?s consolidated revenues
for fiscal year 2020 (ended March 31, 2021) totaled ¥8,729.1bn ($78.6bn), with
871 consolidated subsidiaries and approximately 350,000 employees worldwide.
Hitachi is working to increase social, environmental and economic value for its
customers across six domains; IT, Energy, Industry, Mobility, Smart Life and
Automotive Systems through Lumada, Hitachi's advanced digital solutions,
services, and technologies for turning data into insights to drive digital
innovation. For more information on Hitachi, please visit the company's website
at https://www.hitachi.com.

About Hitachi Rail

Hitachi Rail is a fully integrated, global provider of rail solutions across
rolling stock, signalling, service & maintenance, digital technology and
turnkey solutions. With a presence in 38 countries across six continents and
over 12,000 employees, our mission is to contribute to society through the
continuous development of superior rail transport solutions. We are proud of
our global achievements, from our world famous ?bullet trains?, to our
signalling solutions and turnkey projects, state-of-the-art traffic management
and digital solutions. Drawing on the wider Hitachi Group?s market-leading
technology and research-and-development capabilities, we strive for industry
leading innovations and solutions that can deliver value for customers and
sustainable railway systems that benefit wider society. For information about
Hitachi Rail, visit www.hitachirail.com.

CONTACTS

Thales, Media Relations
Cédric Leurquin
+33 (0)1 57 77 90 93
cedric.leurquin@thalesgroup.com

Thales, Analysts/Investors
Bertrand Delcaire
+33 1 57 77 89 02
ir@thalesgroup.com

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THALES (EPA:HO) - Thales enters into agreement in view of selling its Ground Transportation Systems business to Hitachi Rail

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