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Siemens agrees to buy UK railway business, while shedding a non-core business

Siemens announced late yesterday that it had agreed to buy the rail communications business of British technology firm Invensys for £1.7 billion ($2.2 billion), while also divesting its baggage handling, packaging and letter sorting business used at airports and post offices. Both moves are an attempt by the German engineering giant to focus on core activities and boost profits.

The news follows a drop in net profits in its latest quarter, and also promises to launch a serious cost-cutting program and restructuring plan to save €6 billion over the next two years, while increasing competitiveness. Siemens’ shareholders have already approved the deal, but it still requires approval from Invensys’ shareholders and regulators.

Siemens and Invensys Rail, which specializes in technologies used to direct rail traffic, are rivals and also partners, in the signals market. The two companies are scheduled to work together on the signaling system for the multi-billion Crossrail project, Europe’s biggest civil engineering project that will link east and west London.

Siemens says the purchase will help with global expansion in the rail technology business. Invensys Rail has an established presence in the UK, Spain, Australia, and the US, and has also moved into Germany, Austria, Switzerland, as well as emerging markets like China and India, where Siemens has been weak.

The expected savings from combining territories and technologies, along with cost savings from sharing procurement, administrative, and other costs are projected at €100 million by 2018.

The purchase news comes on the same day that Siemens apologized to the German public for delays and cancellations this holiday season because of its failure to deliver train orders on time.

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