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Invensys rockets on rail disposal and cash return

Shares in technology group Invensys rocketed on Wednesday afternoon after the firm announced that it is to sell its rail division to Siemens, pay down its pension deficit and return a ton of cash to shareholders.

Shares in technology group Invensys rocketed on Wednesday afternoon after the firm announced that it is to sell its rail division to Siemens, pay down its pension deficit and return a ton of cash to shareholders.

The stock, which traded broadly flat for most of the session, was up 27.10% at 280p by the close of trade.

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The company said that it has entered into an agreement to dispose of Invensys Rail to German engineering conglomerate Siemens for £1.742bn.

Invensys Rail provides software-based signalling, communication and control systems for the operation of trains.

"Following a strategic review which highlighted the likely consolidation in the global rail signalling market and the limited scope to increase the size of the Invensys Rail business, we have decided to refocus the Group around our industrial software, systems and control equipment business and, accordingly, to dispose of Invensys Rail," said Chief Executive Wayne Edmunds.

Due to the size of the proposal, the transaction requires the approval from Invensys shareholders (and other approvals) before it can complete. Completion is expected in the second quarter of next year.

The company also said that it has agreed with the trustee of its UK pension scheme to provide it with a "long-term pension solution and increased financial flexibility". This includes an up-front payment of £400m and a payment of £225m to a trust.

Edmunds said that the pension agreement "will result in the cessation of the current deficit reduction payments of £40-47m per annum and we anticipate that no further contributions will be payable into the scheme."

Furthermore, Invensys said it would return £625m in cash to shareholders, which equates to around 76p per share.

Edmunds added: "This transaction creates a more focused industrial software, systems and control equipment group with a significant exposure to higher growth and higher margin segments and the resources to invest in them. It also allows us to make substantial cost savings through a simplified organisational structure."

This simplified structure is expected to save the group £25m per annum by the end of 2014.

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