FILE PHOTO: A woman walks among rain pipes at the Advanced Drainage Systems exhibit area at the 47th Annual World Ag Expo in Tulare, California, February 12, 2014. REUTERS/David McNew/File Photo

By Alexander Hübner and Linda Pasquini

MUNICH (Reuters) -German automotive and industrial supplier Norma will sell its water management business to U.S. rival Advanced Drainage Systems in a deal valued at $1 billion, the companies said on Tuesday.

As a result of the deal, Norma is set to lose roughly a quarter of its forecast revenue this year as it works towards becoming a more focused industrial supplier.

Its shares were down 10.7% as of 1439 GMT after having opened 4% higher, though Norma's largest shareholder welcomed the move.

Interim chief executive Mark Wilhelms said the sale could help lift Norma's operating margin back up to as much as 10%, while the proceeds could be used to fund acquisitions, pay down debt and dole out money to shareholders. The company has previously announced plans to cut 400 jobs.

Norma lowered the 2025 forecast for its margin on adjusted earnings before interest and tax from continuing operations to no more than around 1%, from a previous forecast of 6%-8%.

"Norma has had margins visibly above ten percent in the past," Wilhelms told Reuters in a phone interview. "We want to be sustainably profitable in the medium term in order to achieve margin targets in the high single-digit range by 2028."

The company built up its irrigation and drainage technology business in recent years through acquisitions, with 90% of the division's revenue coming from the United States and customers mainly from the agricultural sector.

Norma expects a net cash inflow in a range of 620 million to 640 million euros ($731 million to $755 million) from the sale.

It plans to use 300 million euros of the proceeds to repay debt and to set aside up to 70 million for potential acquisitions in the industry applications business.

"We will acquire something that is highly synergistic with our industrial business," Wilhelms said. "In doing so, we will also accept some re-leveraging."

Activist investor Teleios Capital, Norma's largest shareholder, said the sale was a "milestone" that would enable the company to drive its restructuring and create value for shareholders.

Approximately 260 million euros will be distributed to shareholders, potentially through a share buyback programme of up to 10% initially.

"This could be the first step after the transaction is completed in the first quarter of 2026. The 2026 Annual General Meeting will decide on further steps," Wilhelms said.

A capital reduction could be preferable to a special dividend as "dividends are unfavorable from a tax perspective for some shareholders," he added.

The deal, which Advanced Drainage Systems said it would fund with cash reserves and existing credit lines, is set to close in the first quarter of 2026.

Norma will, however, remove the water management business from its financial reporting from October, and revised down its full-year guidance on Tuesday accordingly.

It expects sales from continuing operations of 810 million to 830 million euros this year. Its previous guidance, including water management, was 1.1 billion to 1.2 billion.

($1 = 0.8477 euros)

(Additional reporting by Ruchika Khanna in Bengaluru. Writing by Rachel More and Matthias Williams. Editing by Barbara Lewis and Mark Potter)