By Mauro Orru
Arms maker Rheinmetall agreed to sell its automotive business to Munich-based industrial group Aequita for a provisional price of 350 million euros ($407.1 million), moving to shed a unit that has grappled with a challenging market and focus instead on its burgeoning defense business.
The German group said it had signed an agreement to transfer ownership of what was previously its power systems division after embarking on talks with potential buyers last year. The move comes as Rheinmetall's core defense business continues to log strong orders from governments, particularly as North Atlantic Treaty Organization members seek to replenish their stocks after diverting weapons to Ukraine.
Earlier this week, Rheinmetall secured a contract valued at 5.7 billion euros to supply Romania with Lynx combat vehicles, Skyranger air defense systems, medium-caliber ammunition for air defense and armored personnel carriers, two offshore patrol vessels and two diver support vessels.
That package, which Rheinmetall said was the largest international contract in the company's recent history, was announced days after a Russian drone crashed into an apartment building in the Romanian city of Galati, showing willingness from Bucharest to shore up its defenses given Romania's proximity to Ukraine.
Disposing of its automotive business would allow Rheinmetall to focus entirely on defense following the sale of its large- and small-bore piston operations years ago. It would also rid the group of a unit that has been operating in a challenging market as carmakers grapple with a slow electric-vehicle rollout and fierce competition from Chinese rivals.
Rheinmetall said a deterioration in the automotive sector had an impact on the circumstances and terms of the agreement with Aequita that set a provisional price of 350 million euros for a business that generated around 2 billion euros in revenue last year. The figure is subject to adjustment mechanisms and the definitive price could change.
The power systems business has been classified as a discontinued operation since Rheinmetall reported annual results. The company booked an impairment of 350 million euros last year and said it would recognize an additional noncash impairment of around 200 million euros, though the provision has no impact on liquidity or earnings as it is allocated to discontinued operations.
Rheinmetall said the deal is expected to be completed in the fourth quarter, subject to regulatory approval.
Write to Mauro Orru at mauro.orru@wsj.com
(END) Dow Jones Newswires
06-03-26 1008ET
