Hitachi to buy ABB's power grids unit
LONDON: The planned purchase by Hitachi Ltd of ABB Ltd’s power grid division will be the Japanese conglomerate’s biggest ever deal as it shifts focus to the higher-growth market for electricity networks and away from nuclear plants.
Hitachi will acquire 80.1% of the business that has a total enterprise value of US$11bil, it said in a statement. ABB, which will keep the remaining stake, plans to return US$7.6bil to US$7.8bil to shareholders through a buyback or other measures.
The sale of power grids - which makes transformers, long distance electricity-transmission systems and energy storage units - would shrink ABB’s revenue by about a quarter and leave the Swiss engineering giant more concentrated on robotics and automation.
For Hitachi, the move is part of chief executive officer Toshiaki Higashihara’s efforts to restructure the diversified company, which is vying to become one of the top grid companies in the world, according to a June presentation.
Shares of Hitachi fell 1% in Tokyo trading yesterday, valuing the company at about US$27bil. The company will fund the pur- chase through funds on hand and loans. ABB stock rose as much as 2.6%.
ABB will have an option to sell its 19.9% in power grid three years after the deal is completed, which isn’t expected before the first half of 2020. About US$500mil in non-operating restructuring charges will be made in the next two years, ABB said.
With the sale of power grids business, ABB will focus on four leading sectors and simplify its organizational structure as it increases efficiency. The company said it will disclose more details at its fourth-quarter earnings announcement in February.
The divestment was applauded by longtime activist investor Cevian Capital AB, which became a major ABB shareholder more than three years ago and has pushed for a break up of the company.
After conducting a strategic review, chief executive officer Ulrich Spiesshofer defied the investor in 2016 by deciding to hang on to the division, arguing the business was significantly undervalued.
The moves unveiled yesterday “are the right steps in the development of ABB, and enhances ABB’s long-term competitiveness,” Cevian said in a statement, adding that it fully supports the strategy of the company’s board and management.
Spiesshofer’s stance on power grids changed this year after the value of the business rebounded following productivity and margin gains, prompting ABB to work with advisers to consider options, people familiar with the matter said in October. The business generated US$7.1bil in revenue in the first nine months of 2018 and a profit margin of 9.8%, the lowest of its four units.
“Now is the right time,” the CEO told reporters on a call after the sale was announced, adding that no “major” job cuts are planned.
ABB and Hitachi said last week that they were in discussions to expand and redefine an existing strategic power-grid partnership that dates to 2014, without providing details on the terms.
The acquisition will bolster Hitachi’s position in the growing power transmission and distribution sector, and help it diversify away from its nuclear plant business.
The company’s atomic reactor sales have dried up as the global industry is beset by overruns, heightened competition from natural gas and renewables, and stricter rules following the Fukushima disaster. — Bloomberg