Hitachi to acquire ABB's power grids unit valued at US$11 billion

[LONDON] Hitachi Ltd. agreed to buy ABB Ltd.'s power grids division in a deal that values the entire business at US$11 billion, a plan that's aimed at turning the Japanese conglomerate into a top global provider of equipment for electricity networks.

ABB will return proceeds of US$7.6 billion to US$7.8 billion through a buyback of shares or other measures, the European company said. Hitachi will acquire about 80.1 percent of the business while ABB will hold the rest.

The sale of the business -- which makes power 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 focused 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.

A divestment would also meet a longtime demand of activist investor Cevian Capital AB, which became a major ABB shareholder more than three years ago. 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.

That stance changed this year after the value of the power-grids 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$7.1 billion in revenue in the first nine months of 2018 and a profit margin of 9.8 per cent, the lowest of its four units.

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.

Any agreement would add to the US$3.5 billion of announced acquisitions Hitachi has been involved in over the last three years, according to data compiled by Bloomberg, with the biggest being last year's US$1.25 billion purchase of units and assets from Accudyne Industries.

The deal is the latest major overseas transaction by a Japanese company as financing costs remain low. Takeda Pharmaceutical Co. is on course to complete its US$62 billion takeover of Shire Plc after shareholders cleared the deal this month. In October, KKR & Co.'s Calsonic Kansei agreed to acquire car-parts maker Magneti Marelli from Fiat Chrysler Automobiles NV in a deal valued at 6.2 billion euros (S$9.62 billion). Daikin Industries Ltd. last month agreed to buy Austrian commercial refrigerator maker AHT Cooling Systems GmbH in a deal worth about US$1 billion.

BLOOMBERG