Hitachi to buy ABB power-grid unit for 800b yen

[TOKYO] Hitachi Ltd is close to a deal to purchase ABB Ltd's power-grids business for as much as 800 billion yen (S$9.6 billion), the Nikkei reported Wednesday.

The board of the Tokyo-based conglomerate confirmed plans to move forward with the transaction, the Japanese newspaper said, adding that the two companies will soon conduct a final assessment of the business and may reach an agreement as early as this week.

A representative for Hitachi didn't respond to calls seeking comment while a spokesman for ABB said he couldn't provide immediate comment. ABB shares rose 1.9 per cent to 19.35 francs(S$26.76) at 10.37 am in Zurich, giving a market value of 42 billion francs.

The Swiss engineering firm was considering the sale of the business and discussing options with advisers, Bloomberg News reported in August. The division's implied valuation was more than US$10 billion following productivity and margin gains, according to a Bloomberg Intelligence analysis the same month. The Financial Times reported last month that the unit was worth about US$13 billion, citing analysts.

The sale of the business that makes power transformers, long distance electricity-transmission systems and energy storage units would shrink ABB by around a fourth. It would also vindicate activist Cevian Capital AB, which has been pushing for the move for years. Chief Executive Officer Ulrich Spiesshofer defied the investor in 2016 by deciding to hang on to the laggard unit.

ABB's most recent quarterly results published in October fell short of expectations as demand for industrial equipment slowed in the Middle East and the U.K. and an overhaul of power grids remained a work in progress.

The profit margin widened at the division to 10 per cent, just enough to reach the bottom end of a goal, but significantly below that of the company's other three businesses.

BLOOMBERG