Invensys business structure

Business Focus: Corporate split-up leads to new union

As Invensys faces takeover, the future of industrial conglomerates comes under scrutiny. Meanwhile a high-tech cable specialist faces difficult times.

The forthcoming takeover of the UK engineering group Invensys has alerted the City to the possibility of other similar conglomerates being sold or broken up. In fact, Invensys itself - which was formed in 1990 from the merger of BTR and Siebe - looked as if it was pursuing the break-up route last year when it sold its healthy rail business to Siemens for £1.74bn. Now the group’s directors are recommending acceptance of the £3.4 billion offer from Schneider Electric, the French automation and controls company, saying it “represents an attractive value” for shareholders.

Invensys provides technology and services for industrial clients in the fields of software, automation and energy system controls. It also makes controls for white goods. The main aim of the sell-off of Invensys Rail was to focus on software, controls and automation, the company suggested last year. However, the income from the sale helped plug a big gap in its pension pot, to the tune of around £600m. The company also pledged to pay £625m to its shareholders.

As a result, Invensys is seen as being in decent financial health. Indeed, for the year to end-March 2013, group revenues rose 2 per cent year on year to £1.79bn. Operating profits (excluding exceptional items) for its three continuing businesses in total rose 41 per cent to £93m.

For Schneider, the deal will reinforce its Industry business, especially in software and services, which provide long-term revenues, and will boost its presence in North America.

The situation at Invensys has also turned analysts’ attention onto another diversified British technology company, Smiths Group, whose sectors include aerospace, oil and gas, and medical. Although Smiths’ financial performance has been good, its medical business has been under pressure from falling healthcare spending, and it was targeted for takeover by a venture capital firm last year. Smiths also has a pension-pot hole it needs to fill. If it can resolve these issues, it too could be on a path to break-up and/or acquisition, some analysts think.

It seems that many established engineering conglomerates may disappear in their present form, as they find they need to drop and take on businesses to respond to market changes, and their operations become increasingly international. This just about sums up the wider picture for conglomerates.

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