MUNICH (Reuters) -German automotive and industrial supplier Norma will sell its lucrative water management business to U.S. rival Advanced Drainage Systems ( WMS ) 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.

Shares in Norma opened 4% higher on Tuesday after the announcement of the deal. However, they reversed course and were trading 3.8% lower at around 0800 GMT.

The company built up the 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.

"The management board plans to return the remaining portion of the net cash inflow to shareholders," Norma said in a statement, potentially through a share buyback programme initially.

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

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

Norma expects sales from continuing operations to be in the range of 810 million to 830 million euros this year. Its previous guidance including the water management business had been for 1.1 billion to 1.2 billion.

The company also lowered its forecast range for adjusted EBIT margin from continuing operations to no more than around 1%, from a previous forecast of 6%-8%.

($1 = 0.8477 euros)

(Additional reporting by Ruchika Khanna in Bengaluru; Writing by Rachel More; Editing by Miranda Murray and Barbara Lewis)