CIMIC offloads UGL trains but keeps the engine room in $764m sale to Sojitz

End of the line: CIMIC is offloading UGL’s transport division to Japan’s Sojitz for $993m. Picture: iStock

CIMIC has sold down half of UGL’s transport arm to Japan’s Sojitz Corporation in a deal that values the unit at $1.2bn.

The Japanese trading company will own a 50 per cent share in the UGL transportation unit and CIMIC said it would recieve about $US500m ($764m) in proceeds.

DataRoom revealed the sale of the business and that Sojitz was understood to be in the final mix as a buyer, and now the pair are believed to have reached a deal.

Sources say that CIMIC, which is owned by Spanish building and engineering firm ACS, had wanted more than $1bn for the company when it was talking to suitors as part of the sale process.

CIMIC paid $524m for the then ASX-listed UGL in a contested takeover battle in 2016, with market participants viewing the contracting and power services capabilities as the strategic rationale.

The energy transition has only enhanced the value of those assets, while train manufacturing now faces margin pressure from Chinese and Asian competitors.

The deal essentially allows CIMIC to partially exit a structurally challenged business at over its original acquisition cost, while retaining the divisions that justified the purchase.

Integrating the remaining UGL assets into CPB Contractors would create operational efficiencies and streamline reporting – consistent with parent company ACS’s preference for simplified group structures.

Both businesses already operate in similar sectors including infrastructure and construction, making the merger a natural fit.

However, a CIMIC spokesperson denied it would merge both units or that the move was under consideration.

As earlier reported by DataRoom, other parties that ran the ruler over the operation as part of the Macquarie Capital-advised sale process were Service Stream, Ventia and Platinum Equity.

Japan’s Sojitz is a general trading company that sources say has been looking at targets in Australia of late and operates in a broad range of sectors, including transport and infrastructure, with a heavy involvement in the train and rail industry.

It purchased Capella Capital Partnership from Lendlease this year for $470m – a business heavily involved in public-private partnerships for large-scale development projects such as hospitals, roads and trains.

UGL’s transport division has built more than 11,000 locomotive wagons and maintained 3000 rail passenger cars, with state governments as its primary clients.

The business also manufactures buses, maintains rail infrastructure and oversees public transport services across Melbourne, Sydney, Canberra, Adelaide and Auckland.

It generates approximately $1.5bn in annual revenue and more than $100m in earnings.

ACS faces pressure to reduce debt and recycle capital, with CIMIC also grappling with costly claims on building projects.

ACS reported net debt of €2.8bn ($4.99bn) in March, despite generating €827.6m in annual profit for 2024.