ABB weighs sale of power grid unit as value swells

[LONDON] ABB Ltd is considering the sale of its power grid unit amid a surge in the value of the asset, according to people with knowledge of the matter, signaling a potential reversal in chief executive officer Ulrich Spiesshofer's plans for the business.

The Swiss engineering company is discussing options with advisers, the people said, declining to be identified as the deliberations are confidential. While ABB's board, including top shareholder Investor AB, is now open to offers, the firm isn't running a formal sale process, they said.

The division's implied valuation has increased to about US$10.2 billion following productivity and margin gains, Bloomberg Intelligence estimated this month. That's about one-fifth the size of ABB's overall market capitaliation.

Representatives of ABB and Investor AB, the holding company controlled by Sweden's Wallenberg family, declined to comment.

The Zurich-based company may also consider a spinoff or decide to retain the asset, the people said. Power grids could attract interest from large buyout and infrastructure funds as well as Asian companies, though the latter may face regulatory hurdles, the people said.

ABB shares jumped as much as 2.3 per cent after Bloomberg News reported on the company's deliberations. The stock closed up 1.7 per cent to 23.09 Swiss francs in Zurich.

A sale of the unit would meet a longtime demand of Cevian Capital AB. The activist investor became a major shareholder in ABB more than three years ago and began pushing for a breakup of the company, and particularly a separation of its power grids division. Selling it off would leave ABB more focused on robotics and automation.

Mr Spiesshofer, after conducting a strategic review, opted in October 2016 to keep the business, instead choosing to buy back shares and sell smaller assets in moves that have failed to placate its second-largest investor.

Representatives for Cevian didn't immediately respond to requests for comment.

The power grids business is worth "much, much more today" than the US$4 billion to US$5 billion valuation that it was given in 2016, Mr Spiesshofer told analysts in July, arguing that it was a good decision to have kept it in the portfolio. The CEO said he was "really happy" with order momentum and forecast the business is on track to deliver about US$1 billion of profit.

"We have turned it around. It's growing again," Mr Spiesshofer said. He simultaneously signalled a greater willingness to reconsider the decision to keep the business, as he vowed to continue reshaping ABB to deliver long-term value for shareholders. "We would not say that our portfolio is now cast in stone."

ABB shares have dropped about 12 per cent since the start of the year, curtailing its gains during Mr Spiesshofer's almost five-year tenure to about 8 per cent.

In keeping the power grids division, the CEO had pledged to raise the margin to between 10 per cent to 14 per cent, a level it still didn't reach last quarter.

Cevian, having placed its co-founder Lars Forberg on ABB's board, had given Mr Spiesshofer almost two years to prove his strategy that keeping the company together would "unlock maximum shareholder value".

In an interview with Swedish financial newspaper Dagens Industri this month, the Swedish investment company's co-founder Christer Gardell lamented a lack of progress at ABB, accusing Mr Spiesshofer of having lost touch with reality and calling on the engineering giant to deliver value for shareholders.

BLOOMBERG