In its biggest divestment so far, engineering conglomerate Larsen & Toubro (L&T) on Tuesday said it would sell its electrical and automation business (E&A) to France-headquartered Schneider Electric for a cash consideration of Rs 140 billion. The divestment plan, which was first discussed in the summer of 2015, took three years to mature, it is learnt.

The deal is important because it signals L&T’s exit from manufacturing in the real sense, a source said. Although it will continue with manufacturing in power equipment as well as industrial products and machinery, that will primarily be on the project business side with associated fabrication, he added. There have been many divestments in the past, the biggest being the company’s exit from cement 15 years ago.

Schneider Electric will partner investment company Temasek for the deal, which took merchant bankers to several cities within India and overseas. A person familiar with the developments pointed out how it was a hard-fought battle between Siemens, Eaton, and Schneider — the three suitors talking to L&T. While the meetings with Siemens and Schneider were held mostly in India where the two companies have a strong presence, negotiations with Dublin-headquartered Eaton took place on neutral ground, another source told Business Standard. That was in Singapore. Finally, the deal was clinched in Mumbai as bankers settled for the Schneider-Temasek partnership.

L&T was represented by Arpwood Capital, while Schneider-Temasek were advised by Bank of America Merrill Lynch and Citi.

“L&T, today (Tuesday) signed, subject to regulatory approvals, definitive agreements with Schneider Electric, for strategic divestment of its E&A business for an all-cash consideration of Rs 140 billion,” the company said in a statement.

The divestment of this business is part of L&T’s larger plan to streamline its operations by divesting from non-core assets. The contribution from the E&A division to L&T’s total revenue has declined over the years as the proportion of other segments such as infrastructure and engineering, procurement, and construction grew. In addition, the E&A industry, which requires constant technology advancements, also grew competitive, said an analyst.

For financial year 2016-17, the E&A business reported net revenue of Rs 50.38 billion.

“The divestment of E&A business is in line with L&T’s stated intent of unlocking value within the existing business portfolio to streamline and allocate capital and management focus for creating long-term value for our stakeholders,” said S N Subrahmanyan, chief executive officer and managing director at L&T.

In a separate press statement, Schneider said, “Schneider Electric announces the signing of an agreement with L&T to buy its E&A business and combine it with Schneider Electric India’s low voltage and industrial automation product business. Temasek will invest in the combined business and will hold 35 per cent of it.”

This deal will strengthen Schneider Electric’s India business, making it the thirdlargest country in terms of revenues of €1.6 billion (Rs 128 billion), on a par with France.

Schneider pipped German conglomerate Siemens and Dublin-based Eaton in a hard-fought battle to acquire the E&A business.

“Our investment in Schneider Electric India is another step in the steady growth of our portfolio in India over the past few years, and reflective of the type of partnership opportunities that we seek to invest into,” said Rohit Sipahimalani, joint head, India, Temasek, in a press statement.

Analysts see the conclusion of the deal as a positive for L&T. “It is one of the last big divestments for the company. The market will now look for turnaround at its loss-making divisions and partial stake sale of comparatively small size in some divisions. It is a good move, as it helps to focus on the core operations of the company,” said an analyst with a domestic brokerage firm.

The E&A business includes five manufacturing facilities in India as well as presence in a few countries in West Asia, South East Asia, and the UK. The transaction includes all the current business segments of E&A except marine switchgear and servowatch systems. These two businesses share synergy with L&T’s defence business.

Subrahmanyan added that the deal would be completed in 12-18 months, and would require various approvals, including that of the Competition Commission of India.

L&T’s E&A division has over 5,000 employees, excluding marine switchgear and servowatch systems. All the employees will be transferred to Schneider.

Valued at Rs 140 billion, analysts see it as a good deal for L&T. “It is a good valuation and it will help them improve their balance sheet. They may not use it for overall debt reduction, but it will help them with working capital and in growing faster,” said Dhirendra Tiwari, head of research, Antique Stock Broking.

Subrahmanyan did not share details on what the company plans to do with the proceeds. “The transaction will take some time, so let the money come in. Companies like us take a lot of time in getting into details of what to do with proceeds, where to allocate capital and resources. It is too early to talk about it,” he added.

Schneider expects the new combined business to create significant synergies and efficiency by leveraging on the complementary businesses of Schneider and L&T E&A business. The synergy will include enabling Schneider access to consumers in tier II and tier III cities and semi-urban and rural areas across India, where Schneider Electric currently has limited presence.

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