Hitachi has agreed to acquire 80.1% of ABB’s Power Grids division in a deal that come with an enterprise value (EV) of $11 billion.
ABB says this divestment is an expansion of its existing partnership with Hitachi that dates back to 2014. The EV is equivalent to an EV/operating profit EBITA multiple of 11.2 x 1, ABB said.
ABB said: “Since 2014, Power Grids has been significantly improved under the ownership of ABB. The latest results (Q3, 2018) are at the target margin corridor, having more than doubled margins, with positive third party base order development recorded for the last six consecutive quarters.”
The Power Grids division serves utility, industry, transportation and infrastructure customers and is focused on addressing key areas such as the integration of renewable energies, growing network complexity, grid automation, and micro-grids.
ABB continued: “In the fast-changing world of energy infrastructure, with a shifting customer landscape and the need for financing and increased government influence, ABB believes Hitachi is the best owner for Power Grids.
“As a stable and long-term committed owner, with whom ABB has developed a strong business partnership since 2014, Hitachi will further strengthen the business, providing it with access to new and growing markets as well as financing. Hitachi will accelerate Power Grids to the next stage of its development, building on the solid foundation achieved under ABB’s previous ownership.”
As part of the deal, ABB will initially retain a 19.9% equity stake in the joint venture, but the transaction agreement includes a pre-defined option for ABB to exit the retained 19.9% share, exercisable three years after closing, at fair market value with floor price at 90% of agreed EV.
The joint venture will be headquartered in Switzerland, with Hitachi retaining the management team to ensure business continuity.
ABB says this deal is all part of its efforts to simplify its business model and structure. Effective April 1, 2019, ABB will discontinue its “legacy matrix structure”, allowing its four leading businesses to serve customers even better, it said.
These businesses are the Electrification, Industrial Automation, Robotics & Discrete Automation and Motion.
“Each business will be either the global #1 or #2 player in attractive markets with strong secular drivers. ABB’s established domain know-how, world-class engineering and technology expertise, will position the four businesses well to deliver innovative products and solutions for enhanced customer value,” the company said.
“Based on ABB’s common digital platform ABB Ability™, the businesses will provide tailored digital solutions, driving enhanced customer value. Building on emerging technologies including artificial intelligence and its strong software offering, ABB Ability will meet the increasing demand from ABB’s customers for digital solutions in the rapidly changing industrial world.”
ABB CEO, Ulrich Spiesshofer, said: “Our four newly shaped businesses, each a global leader, will be well aligned to the way our customers operate and focus stronger on emerging technologies such as artificial intelligence. The continued simplification of our business model and structure will be a catalyst for growth and efficiency in our businesses. Our businesses will be further supported through the transfer of experienced resources from today’s country organisations.”
The Electrification business, which presently has an addressable market of $160 billion, will have strong exposure to rapidly growing customer segments including renewables, e-mobility, data centres and smart buildings, ABB said. It will be led by Tarak Mehta, currently President of the Electrification Product division.
The Industrial Automation business will include ABB’s industry-specific integrated automation, electrification and digital solutions, control technologies, software and advanced services, as well as measurement and analytics, marine, and turbo-charging offerings. The addressable market of $90 billion is expected to grow on average by 3-4%/y over the long-term. The business will be led by Peter Terwiesch, currently President of the Industrial Automation division.
The Robotics and Discrete Automation segment has digital solutions and services that provide customers with enhanced safety, efficiency, up-time and speed, and cater to the growing customer demand for flexible and integrated manufacturing solutions, ABB says. It will be led by Sami Atiya, currently President of the Robotics and Motion division.
The Motion business, meanwhile, will provide customers with a range of innovative electrical motors, generators, drives, and service, as well as integrated digital powertrain solutions. It will be the number one player in the sector and be led by Morten Wierod, currently Managing Director Business Unit Drives.
ABB intends to host a strategy update alongside its December quarter results, expected on February 28.