TOKYO -- Japanese industrial conglomerate Hitachi will buy European defense electronics company Thales' railway signaling business for 1.66 billion euros ($1.97 billion), the company said Wednesday.
The acquisition will be made through Hitachi's railway subsidiary Hitachi Rail. Though Hitachi and Thales have agreed on the enterprise value, the final purchase price could still be adjusted. The deal is expected to close in 18 months.
Thales' Ground Transportation Systems business offers rail signaling, train-control and fare-collection systems. The unit has about 9,000 employees in 42 countries and generated 1.6 billion euros in revenue in fiscal 2020.
Through the purchase, Hitachi hopes to expand digitization in the rail sector and increase its railway business revenue to 1 trillion yen ($9.17 billion) by fiscal 2026, the company said in a news release.
"This deal is at the core of our railway business strategy to focus our growth in our digital and railway control or signaling segment, rather than the low-profitability rolling stock sector," Alistair Dormer, Hitachi's executive vice president who leads the mobility business, said in a press conference.
Thales GTS's fare collection systems, including automated railway fare collection, road charging and car park payments, has "huge potential for expansion into mobility as a service," to provide transport solutions seamlessly through the use of information technology, said Dormer. The technology complements what Hitachi has been developing, such as systems to charge public transport users based on their locations, he said.
GTS would also make more data available to Hitachi, which has been building up its IT offerings through its internet of things platform Lumada. Earlier this year, the conglomerate announced a $9.6 billion acquisition of the U.S. software developer GlobalLogic. The technology from GTS and Hitachi Rail would be "underpinned by Lumada and GlobalLogic's chip-to-cloud technology to provide the overall digital service to allow people to experience optimum journeys and passenger experience," said Dormer.
Dormer also said that "the GTS business is extremely complementary from a geographic perspective." GTS is headquartered in Germany, France and Canada. It also has also provided signaling systems in Asia including in Singapore and Hong Kong - which Dormer referred to as its "key customers" outside of Japan, with long established metro systems and high safety standards.
Hitachi Rail's current business bases are primarily in the U.K., Italy, Japan and North America.
Hitachi Rail was bidding against Switzerland's Stadler Rail and Spain's CAF to purchase Thales' GTS, Reuters reported in July.