Siemens AG (ADR) (NYSE:SI), the largest industrial conglomerate in Germany, announced late Wednesday that it has agreed to acquire the rail automation business of London-based Invensys plc (LON:ISYS) for $2.9 billion (2.2 billion euros). Siemens is acquiring Invensys rail to strengthen its presence in the rail automation sector. Recently, Invensys and Siemens worked together to provide signalling for London’s Crossrail network.


“With the addition of Invensys Rail, we are in an excellent position to offer best-in-class solutions and technology to rail operators worldwide,” said the chief of Siemens’s mobility and logistics division, Sami Atiya.

Invensys, a technology and engineering firm, said it will return £625 million or $1 billion of the deal to investors through special dividends. Another £400 million will be spent on eliminating the company’s pension scheme deficit, and the company will hold £250 million in pension reserves. The company’s pension deficit was the main reason behind the failed acquisition by Emerson Electric earlier this year.

Invensys plc (LON:ISYS) share prices soared 27 percent to 280 pence after the rumors of takeover, before Siemens AG (ADR) (NYSE:SI) announced the deal. On Thursday morning, the company shares again jumped 12 percent to 315.2 pence. Invensys plc (LON:ISYS) CEO said that after a strategic business review, the management found limited scope of increasing the size of rail business. So, the company decided to sell off the rail signalling unit to refocus on its main businesses – industrial software, and systems and control equipment.

The rail signalling was the most profitable unit of Invensys, with £775 million in revenue last year, and net profits of £116 million. It contributed 30 percent to Invensys’s total revenue and 39 percent to the profits.

Siemens AG (ADR) (NYSE:SI) said it will achieve cost savings of 100 million euros  related to the takeover by 2018. The deal is expected to be completed by the second quarter of 2013. Siemens plans to merge the signalling unit of Invensys with its own rail automation division. Siemens stocks gained less than 1 percent on Thursday.

The German company has earlier been criticized for not focusing properly on its core business. Now the company has decided to sell off the non-core businesses units: baggage handling, postal, and parcel services that generate a combined revenue of 900 million euros.