(Alliance News) - The UK's competition watchdog has said it will give the green light to GBP1.5 billion takeover of Thales SA's rail infrastructure after buyer Hitachi Ltd agreed to sell off its mainline signalling businesses in the UK, France and Germany to appease concerns over the deal.

The Competition & Markets Authority said it considered the move to be "an effective and proportionate remedy" after earlier finding that the tie-up would lessen competition in the supply of mainline rail signalling in the UK.

It said the decision to offload parts of Hitachi's rail assets would "preserve competition and ensure customers, such as Network Rail, will not be negatively affected by the merger".

But the CMA stressed it will still have to approve the buyers of the businesses being put up for sale and Hitachi's key customers in these countries will also need to agree to the transfer of the signalling contracts.

The CMA said in August that it was no longer concerned over the impact of the takeover on the London Underground signalling sector after new evidence came to light, but confirmed competition concerns in the supply of mainline rail signalling in the UK.

Stuart McIntosh, chair of the CMA's independent inquiry group, said: "Effective signalling is vital for safe and reliable rail travel, which is why it has been important for us to review this merger thoroughly before reaching a final decision.

"We have concluded that the merger will not reduce competition to provide CBTC (communications based train control) signalling systems, and in particular those required on the underground network in London.

"The picture is not the same for digital mainline signalling. To address our concerns here, Hitachi is selling part of its existing mainline signalling business to an independent purchaser.

"This will protect competition, which is key to keeping costs down, maintaining high quality of service and promoting innovation."

The deal involves two of the leading suppliers of signalling systems for mainline and urban railway networks.

The CMA warned in June that the takeover could drive up prices and reduce service quality for passengers, while also seeing Network Rail and the London Underground lose out on digital signalling options because it would lessen competition in the market.

The CMA added that the merger could raise costs for Network Rail.

The industry is already highly concentrated with a small number of suppliers, with Siemens AG and Alstom SA the only other two leading firms.

An in-depth probe was launched in December after the watchdog raised concerns over the deal.

Hitachi and Thales began talks over the deal in August 2021, with aims to close the acquisition within the second half of 2023.

The acquisition is also being investigated by the European Commission.

Thales said it recently resubmitted amended proposals with the European regulator and now hopes to get final approval for the deal by early November.

A Hitachi Rail spokesman said: "Having gained clearance from the CMA, we are now focused on achieving the final anti-trust clearance from the European Commission.

"We believe strongly in the competitive benefits of the deal to acquire Thales's Ground Transportation Systems, which will deliver value for customers in the rail signalling and mobility sectors in Europe and around the world."

Thales shares were 0.5% lower at EUR130.50 each on Wednesday morning in Paris, while Hitachi shares closed 4.4% lower at JPY8,677 each in Tokyo.

By Holly Williams, PA Business Editor

Press Association: Finance

source: PA

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