Hitachi in talks to buy ABB’s power grids business
Swiss industrial group has faced activist pressure to sell unit valued at around $13bn
Japan’s Hitachi is in discussions to buy part or all of ABB’s power grids business, a division that analysts have said may be worth around $13bn.
According to people close to the matter, the two sides have been talking privately and the negotiations are at a fairly developed stage.
However, these people cautioned that a deal is not assured and they declined to disclose the valuation for the unit being discussed or the exact structure of a potential agreement.
One person said ABB might retain a minority stake in the unit, which makes products that channel electricity over long distances.
The two companies declined to comment.
Shares in ABB climbed 1.5 per cent on Friday to SFr20.06 after Reuters reported that the Swiss company was in talks with three Asian suitors including Hitachi and Japan’s Mitsubishi Electric about a deal for the unit.
Another person close to the situation confirmed that at least one Japanese industrial conglomerate was in discussions with ABB about a large asset purchase, but stressed that nothing had been decided.
Any transaction would add to the record pace of outbound dealmaking by Japanese companies in 2018, which has seen companies from the country so far agree to nearly $160bn in deals, according to data from Dealogic.
For Hitachi, the talks come as the group has aggressively sold less profitable divisions to expand its core businesses, which include its power and energy operations.
Hitachi, which has a joint venture with ABB to supply equipment for Japan’s energy grids, has said it wants to increase its grid solutions revenue by 60 per cent to ¥120bn ($1bn) in three years.
ABB had mulled divesting its power grids arm two years ago following pressure from Cevian Capital, the European activist fund which holds a 5 per cent stake.
A strategic review at the time concluded it was best kept under ABB’s umbrella. Since then, the division’s performance has improved. Power grids reported pre-tax operating profits of $972m last year on revenues of $10.4bn, with profit margins recently at the lower end of its 10-14 per cent target. Last year Cevian co-founder Lars Forberg joined the ABB board.
Ulrich Spiesshofer, ABB’s chief executive, has cited the costs of carving out the division, as well as the synergy benefits, for keeping it under the Swiss group’s umbrella. But he fuelled speculation about a possible rethink in June when he told the Financial Times: “You should never say this has to be the portfolio that is cast in stone.”
ABB had faced limited options for its power grids division. A spin-off might have left a business with insufficient scale to compete globally; a sale to a Chinese buyer would almost certainly have been blocked by the US on security grounds; and a joint venture with Siemens’s gas and power activities could have hit significant antitrust issues.
The problems which have hit General Electric in the US have highlighted the pressures on industrial conglomerates to shed businesses and focus on fewer sectors, which have also been felt by ABB’s German rival Siemens. ABB shares are down 20 per cent compared with a year ago.
Since his appointment as chief executive in 2013, Mr Spiesshofer has sought to streamline and simplify ABB around four business areas — power grids, electrification, industrial automation and robotics.
But despite global economic growth, he has struggled to return ABB to sustained expansion. Group revenues in the first nine months of this year, at $26.8bn, were just 2 per cent higher than a year earlier on a like-for-like basis.