According to a report published by global news agency Reuters citing sources, ABB wants to sell all or part of its power grids business and the Swiss company is in negotiations with two Asian companies for the same – Hitachi Ltd and Mitsubishi Electric Corp.
Following the publication of the report, there was an increase in the shares of the company.
The report further said that ABB is expecting to get a valuation for its power business of around $11 billion including debt.
Sources also reportedly said that talks with State Grid of China for a possible deal were also being held by the Swiss company. The report said that initial talks were held between Chief Executive Ulrich Spiesshofer and the Chinese company’s leadership while he was \on a visit to the country earlier in the week.
Spiesshofer had decided against the wishes some of its shareholders to sell off the power grids business and decided to keep it with the company two years ago and hence this decision of the company is a complete u-turn from the earlier position. The power grid business of the company manufactures power transformers and substations for transmitting electricity.
The power unit of ABB has been the weakling in the company and has weighed down on the stock price of the company even though the business has been doing better in the last two years. Despite this, the unit accounts for the lowest profit margin for the company. The company’s business also manufactures industrial robots and drives used in factories.
According to the report, one source even set a date of next week when ABB would announce the deal even though other sources reportedly said that the time taken for arrive at a deal would be longer.
Sources also said that a joint venture structure could be the mode for the deal in which ABB would retain a share of the business and would continue to sell its components to the new entity.
Sources also said that the money derived from the deal could be returned to the shareholders through a share buyback program and also use the money to hasten the process of acquisitions in the automation part of its business.
There was no comment from ABB on the story. No comments were also available from Hitachi and Mitsubishi Electric.
The present business structure of ABB was not “cast in stone” and therefore ABB could contemplate selling off more of its business units, Spiesshofer had said earlier this year.
Potential buyers would be interested to purchase ABB’s power grids business because of the advanced technology of the company – especially in areas such as high-voltage direct current that helps in the transmission of electricity over long distances., said some analysts.
“The turnaround is finally well under way at power grids and ABB would get a better price now than they would have two years ago,” said Richard Frei at Zuercher Kantonalbank.
Still, the company’s problems were not only around power grids, he said. “There are still growth concerns which won’t go away with a sale of power grids.”
(Adapted from Reuters.com)